29 ways to slash your tax bill in 2014

By Nila Sweeney | 15 Aug 2013
Many smart investors understand the property market but fail to capitalise on significant potential tax savings. Income-producing properties incur considerable expenses throughout the year and investors are entitled to claim these costs. All you need to do is invest a little time now and you’re poised to save, or even pocket, thousands of dollars in tax bills. Here, Propell National Valuers reveal some handy tips:
1. Know what expenses you can claim as tax deductions
You may already be familiar with common property related expenses such as pest control, yard maintenance and body corporate fees,but you may be surprised to learn there’s more than 20 other areas you may be able to claim. Expenses incurred for advertising for tenants, interest on loans, security patrol fees and stationery and postage can all be claimed if you incur these costs. Let’s say your body corporate fees are $600 per quarter; this could mean  a possible $2,400 you can claim in just one area.
What you may be able to claim as a tax deduction:
  • Advertising for tenants 
  • Bank charges 
  • Body corporate fees and charges
  • Cleaning 
  • Council rates 
  • Electricity and gas 
  • Gardening and lawn mowing 
  • In-house audio/visual service charges 
  • Insurance such as building, contents and public liability 
  • Interest on loans 
  • Land tax 
  • Lease document expenses such as preparation, registration, stamp duty 
  • Legal expenses 
  • Mortgage discharge expenses 
  • Pest control 
  • Property agent’s fees and commission 
  • Quantity surveyor’s fees 
  • Repairs and maintenance 
  • Secretarial and bookkeeping fees 
  • Security patrol fees 
  • Servicing costs 
  • Stationery and postage 
  • Telephone calls and rental
  • Tax related expenses 
  • Travel and car expenses for rent collection, inspection of property and maintenance of property 
  • Water charges 
Expenses that are also deductible over a 
period of years include:
  • Borrowing expenses (expenses directly incurred intaking out a loan for the property)
  • Amounts for decline invalue of depreciating assets
  • Capital works deductions
2. Keep detailed records
In addition to meeting ATO requirements, keeping accurate records of all income and expenses can help ensure you don’t miss out on potential deductions. It’s easy to remember expenses incurred in the last month; not so easy recalling them from 10 months ago. Maintaining a good record keeping system throughout the year can make tax time much less painful and far more beneficial. 
3. Pay expenses in advance 
Timing is key when it comes to making your dollar go further. It may be advantageous to pay some  expenses before the end of the financial year. Not only could you make immediate claims on these and reduce time being out of pocket, but the larger tax refunds can be used for further investment or  accumulate an additional year of interest. Just ensure any repair work undertaken can be classed as  maintenance and not a renovation, as repairs are written off at 100% in the first year, hence no depreciation is required. Renovation is depreciated  at the market rate determined by the quantity surveyor in your tax depreciation schedule.
4. Get expert advice on tax depreciation
A lack of knowledge around tax depreciation schedules by both accountants and investors can result in lost financial opportunities. Much of the confusion surrounding property depreciation schedules relate to the age of eligible properties. 
All properties contain depreciation benefits, regardless of age. The Australian Taxation Office stipulates that residential properties built after 18 July 1985 are eligible for depreciation on construction costs. Properties built before this can still be eligible for depreciation benefits if major alterations and additions have been made including plant and equipment capital expenditure. 
Decks, extensions, carpets, window treatments, hot water systems, air conditioning, furniture and pools can all depreciate in value and be considered in both old and new properties. Improvements or additions to older properties will generate lower depreciation values but these are still worth claiming.
5. Be mindful of capital gains tax 
Remember to consider the timing of a sale. Investment properties owned by an individual, trust or partnership will attract a 50% discount on capital gains tax if they are sold more than 12 months after they were purchased. If an investment property is sold within the first 12 months then the gains are still capital gains (but without the 50% discount), which can be used to offset any capital losses.
6. Utilise self-managed superannuation 
Placing your property under the ownership of your self-managed super fund can have significant tax advantages for rental income and capital gains. One of the advantages of buying property inside an SMSF under the new legislation is that of leverage. If you have $200,000 inside your SMSF and you purchase a property and borrow 80% of the value, you could purchase a property up to around $1,000,000. This is not necessarily recommended, however if the property doubles in value in 10 years to $2,000,000 then you have made a substantial profit by using the bank’s money. This presents a way of growing your superannuation through the growth of the property, by using the bank’s funds instead dipping into all of your own reserves. It is important to get professional advice from a property advisor to ensure you purchase the right asset within an SMSF.
7. Time deduction claims carefully on negative geared properties 
The aim of the negative gearing strategy is to benefit from getting into the market early and increase your investment income over time to cover your expenses. Sometimes it is better to hold off on paying expenses for negatively geared properties until the next financial year because if a loss is incurred on the property, no tax is payable and no deductions will be possible.
8. Low value pooling
It’s a good idea to understand the concept of low cost and low value assets to help maximise your return. Items within your investment property worth less than $1,000 can be placed in a low value pool to maximise returns over a short period of time by increasing the rate of depreciation. Property investors who place assets in the low value pool are able to claim them at a rate of 18.75% in the year of purchase, irrespective of how long the property has been owned and rented. To allow for an increased depreciation deduction, from the second year onwards the remaining balance of the item can be claimed at a rate of 37.5%. 
9. Immediate write-offs 
If this is your first year lodging a tax return as a property investor, you will be pleased to know items within the property that cost less than $300 can immediately be written off in the first year. This means you can claim 100% of the cost, which can have a significant impact on your return. If you co-own your property, you can claim your portion up to $300. This means if you and your investment partner pay $600 for a toilet, you can each claim $300.
10. Investigate PAYG withholding 
If you have a negatively geared property, you may wish to consider lodging a PAYG Withholding Variation form to request your employers to take less tax out each pay. While this means a reduced lump sum at the end of the financial year, it increases cashflow which can be an important strategy for those with multiple negatively geared properties. 
Getting ready for tax time doesn’t need to take a great deal of time or energy. Some basic preparation, along with research and expert advice, can mean the difference between an ordinary return and one that provides great opportunities to kick off the new financial year.
Propell National Valuers provides property and land valuation for residential and commercial purposes in every state and territory across Australia.  Visit www.propellvaluers.com.au or http://ba.propell.com.au

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