TAX ADVANTAGES OF INVESTMENT PROPERTIES

WHAT ARE THE TAX IMPLICATIONS?

In Australia, expenses incurred from income-generating assets are eligible for tax deductions, reducing assessable personal income as per ATO Taxation Ruling TR 97/25. This deduction lowers the investor’s income tax liability.

Tax Implications

Eligible Expenses
Typical expenses for properties include advertising, bank charges, borrowing costs, capital works, rates, insurance, legal fees, management fees, and water charges (if not covered by the tenant). However, these deductions are applicable only if the property is rented out or available for rent. Income from the asset is taxable at the investor’s marginal rate. It's advisable to consult with an accountant for personalized advice.
Understanding Depreciation
Property, especially new ones, offers significant tax advantages through capital works deductions. Capital works expenses can be depreciated over 25-40 years at 2.5% annually if construction began after 17 July 1985 and the property is used for residential or income-producing purposes. Fixtures and fittings with lower values can be depreciated at a rate of 18.75%.
Importance of Depreciation Schedules
Providing a depreciation schedule to your accountant ensures accurate depreciation calculations. These schedules, usually prepared by licensed quantity surveyors, detail depreciation figures for tax purposes. Though they typically cost around $700, they offer substantial benefits in maximizing tax deductions over the asset's life.
Maximizing Tax Savings
Offsetting depreciation expenses against personal income tax liability reduces annual tax payments. This can result in tax savings or rebates at the end of the financial year. Alternatively, applying for a PAYG income tax withholding variation (ITWV) allows the annual tax savings to be distributed upfront, aiding cash flow for property expenses or loan repayments.
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