When Buying Abroad: Property Tax Deductions In Australia
Many investors in Australia have made small fortunes from negative gearing investment properties, a practice where an investor borrows money to acquire an investment property. The net loss can be balanced by other income, effectively lowering the payable tax on proceeds from that investment.
Basically, the investor is banking on its gross income to exceed the cost of owning and managing the property. While there’s a degree of risk involved, this strategy has worked for many, as financial wisdom shows that property values usually double every 7 to 10 years.
Naturally, the more tax deductions you can claim on your investment, the more money you can save. Any property investor would be wise to claim all deductions legally possible, as every dollar goes towards maximizing the investment’s value.
Below are some tax deductions available to any investment property owner.
Most accountants will recommend claiming deductions on interest from loans you took to acquire the property. You can make a size-able tax deduction on money used to buy the property, costs of repair and improvement, as well as expenditures related to tenancy.
But there’s a catch. You can only claim a deduction on borrowed monies used to make your property produce income. If the monies were also used for private expenses, the interest has to be shared in order to assess the tax-deductible value. For example, if you took a loan to buy both a new house and rental property, only the interest from the rental property can be claimed as a tax deduction.
Speak to your accountant or a local finance broker for clarification here, as it can be a tricky and confusing situation depending on your circumstances.
Besides interest, you can also claim tax deductions on bank charges to your loan account. Check your bank statements to see your bank’s charges throughout the year.
You can also claim deductions on travel expenses made during those times you went to see your investment. What’s more, you can claim as many trips as needed, provided those trips were genuinely made with the purpose of checking your property. This can include motor vehicle expenses, and even airfare for longer trips.
Do you want to advertise your property to potential tenants? You can claim deductions on marketing expenses, and even on the fees paid to individuals who help you find tenants. Ditto for expenses incurred while preparing or changing the lease with your tenant/s.
Repairs and Maintenance
While initial repairs, or repairs made on a property after its purchase, are usually not tax-deductible (they are often seen as capital expenses), you can however claim deductions on repairs resulting from tenant wear and tear.
Examples of tax-deductible repairs and maintenance costs include plumbing fixes, repairing and repainting damaged walls, overhauling old gutters, and repairing a malfunctioning cooling/heating unit among others.
Property Agent Commission and Fees
Property agents charge owners fees in exchange for maintaining their property. The agent notes all monthly charges in his/her summary, which you can refer to when claiming deductions. All fees for the year-end financial statement, reference checks, leasing, and monthly rental statements are tax deductible.