Landlords, let’s talk tax

You might be wondering whether you need to register for GST, whether you're allowed to deduct the cost of travelling to and from your rental property, or whether you need to set up a trust - it can all be a little overwhelming.

However, as Coco Hou, CPA and Managing Director of Platinum Accounting Australia, points out, investors should also see tax time as an opportunity to improve their ROI.

"With the right approach, you can legally and strategically maximise your deductions to reduce your taxable income and increase your cash flow," she told Your Investment Property Magazine.

"Too often, investors miss out on legitimate claims simply because they don't know what to look for."

Income tax

Regardless of whether you're negatively or positively geared, it's imperative to claim every deduction you're eligible for. Expenses you incur to maintain, manage, buy or sell your investment properties are generally tax deductible - even minor things like loan application fees or paying a bookkeeper.

Ms Hou says the key to maximising your deductions is keeping accurate records and working closely with an accountant or tax advisor.

"Tax law can be complex, but if you know what to look for and seek professional guidance, you can ensure every eligible dollar works in your favour."

Another option investors could consider is prepaying some expenses. Ms Hou says things like interest, insurance premiums, or even strata fees can be paid up to 12 months in advance.

"If your cash flow allows, this can bring forward deductions into the current tax year, especially helpful if you're expecting higher income this year compared to the next," she said.

Property tax

All states and territories (except the NT) charge land tax. The thresholds and rates are different in each state - in states like Victoria, with more restrictive land tax, it can be a much more significant expense. For example, if your investment property in New South Wales is atop land worth $800,000, you fall under the land tax threshold for the 2025/26 FY and wouldn't have to pay anything, while you'd be charged about $3,450 in Victoria.

Happily for investors, there are strategies that can help minimise your land tax obligations. Land tax is generally calculated based on the total value of the land owned by an individual or entity. If you have three investment properties all in your name in a single state, the land tax you'll owe will be calculated based on the accumulated value of all three.

This is one of the benefits of borderless investing - if your properties are spread across different states, you'll likely have a lower total land tax bill than if all were in one.

Speaking to Your Investment Property last year, experienced investor Monica Rouvellas explained that investors can structure their portfolios to be more tax efficient.

"In NSW, you could either use a unit fixed trust or a special company set up to minimise land tax once you have a few properties in the portfolio," she said.

A trust or company is treated as a separate entity from the individual. When land tax is calculated, property you own in your name is aggregated for land tax purposes separately to property owned by a trust, even if you're the trustee. This means if you're strategic about which property is owned by which entity, you could minimise your land tax obligations.

However, states often charge higher land tax rates on properties held by trusts and apply lower thresholds, so you'll need to carefully run the numbers to make sure you're coming out on top.

Say you've got a property portfolio in Queensland with a total land value of $1.2 million. You want to buy another property, but the land value is $300,000, which will increase your land tax burden by nearly $5,000 (1.65 cents for every $1 over $300,000). In Queensland though, the land tax threshold for land held by a trust is $300,000, so if you set up a unit fixed trust with yourself as trustee and your children as beneficiaries, the new property could be owned by the trust, and wouldn't incur land tax.

Investing with a trust

Setting up a trust is a bit of a process, but if you've got a significant investment property portfolio, there can be other benefits beyond minimising land tax:

• Protect your assets: Like how a company is treated as a separate entity to its shareholders (meaning if the company goes broke, creditors can't usually go after the owners' personal finances), a trust is also a separate legal entity. That means if a beneficiary receiving income from the trust goes broke, the assets in the trust are normally not at risk.

• Strategic distributions: When assets owned by a discretionary trust earn income, trustees can decide which eligible beneficiaries receive how much of it. This means you can strategically allocate income to minimise tax. For example, say the beneficiaries are your three children. Your eldest earns $200,000 per year while your youngest is still at university - if you allocate the income from the trust to the younger child, it will be taxed at a lower rate. It's important to note this is a discretionary trust - a fixed income trust requires the beneficiaries' entitlements to be fixed.

Trusts can be complicated to set up, so it's important to consult professionals before you do anything to figure out if it will be worth it for you.

Deductions you might have forgotten…

• Depreciation: As both fixtures and fittings degrade over time, the depreciation can be deducted each year. Ms Hau notes many investors don't realise that if their property was built after 1987, they could also be entitled to capital works deductions on the building structure itself.

• Insurance: Both landlord and building insurance premiums are tax-deductible.

• Professional fees: You probably know you can claim your property management fees, but any time you're paying your tax agent, bookkeeper or other agent for a service associated with your property, it may be deductible. Even small fees, loan application charges and the like may be deductible.

…and a couple that you can't claim (at least not up front):

• Travel to and from the property: Since 2017, residential property investors haven't been able to claim travel expenses to and from their property (fuel, public transport costs, etc.). If you're a commercial property investor, on the other hand, Ms Hau says you might be able to.

• Improvements: If you're renovating, the cost is deductible in the long run, just over time through depreciation. While repairs to address issues can be deducted immediately, expenses to improve the value of the house, renovations, extensions, etc., need to be claimed over time through depreciation.

2025/26 Financial Year Calendar: Key Property Tax and Lodgement Dates

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