What is deductible & What s not... for Property Investors?

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1 What is deductible & What s nt... fr Prperty Investrs? Belw is a list f items which yu can claim as a deductin against rental incme fr this year. Further belw is a list f items which are nt deductible, usually questined by ATO r deductible ver a number f years. I trust this will help yu cmpile yur infrmatin and make it easier t prepare yur incme tax return and imprve yur decisins in relatin t managing yur rental prperties. Clients f Prperty Tax Specialists receive a cmprehensive checklist and templates t reduce time and guide in this prcess. DEDUCTIBLE - immediately Prperty management & maintenance expenses Advertising fr tenants directly by yu r where the agent charged yu Bdy crprate fees r Strata Title fees and charges Special levies fr capital wrks n a building can nly be depreciated at 2.5% Cleaning Gardening/Lawn Mwing Pest cntrl Security patrl fees Rates & Taxes Water rates, charges & usage Cuncil rates Land tax first time wners have t ldge an initial land tax return with the Office f State Revenue in each state YOU have t initiate this. They will nt chase yu up but they will charge additinal interest fr late ldgement Prperty Agent Fees/cmmissins including GST Pstage & petties, Statement fees and Bank charges/fees Lease dcument expenses Letting fees Administratin expenses including Statinery used t maintain yur rental recrds etc Pstage n dcuments relating t prperty management Telephne calls relating t prperty management ATO prefers t see a diary Legal expenses relating t debt cllectin r tenant prblems Electricity & gas where nt cvered by tenant Insurance Landlrds Building Cntents Public liability On acquisitin frm the slicitr s settlement letter Balance f cuncil rates

2 Balance f water rates Balance f bdy crprate fees Repairs & Maintenance relating t wear & tear r damage as a result f renting ut the prperty. The idea is that an expense is cnsidered a repair when the functinality is being restred. Generally repairs include Plumbing Electrical Handyman Etc. ATO is particularly vigilant t catch peple wh are claiming expenses described as repairs when they are cnsidered t be imprvements. Example fixing brken glass n a windw is cnsidered a repair. Replacing the whle windw frame is an imprvement which can be depreciated at 2.5% Repairs made immediately after purchase f the investment prperty r maintenance t make the prperty suitable fr rental are cnsidered t be f a capital nature - part f the cst f the prperty and can be depreciated. They are nt deductible as ATO cnsiders the lwer price f the prperty reflects its state f disrepair. Interest & lan a/c fees n lans t finance investment prperties. Fr the interest t be deductible the lan must have been applied t acquire an incme prducing asset e.g. rental prperty Where lans used fr bth investment prperty and private assets the interest has t be apprtined based n hw much f the principal was used fr which purpse. This usually happens when peple are using a Line f Credit facility Travel expenses t Inspect prperty Maintain prperty Cllect rents A full deductin can nly be claimed if the sle purpse f the trip relates t the prperty. Where the inspectin is cmbined with a hliday, expenses must be apprtined, Where yu visit an investment prperty during 1 f 10 days yu are in the hliday lcatin ATO says yu are nly allwed the cst f travel frm yur accmmdatin t the rental prperty and return Cst f preparing a Quantity Surveyr s reprt shwing depreciatin expenses and Special Building Write-ff Seminars cst f attending prperty investment seminars nly t the extent that they relate t perating r maximising the return n currently wned prperties Where mney is spent n relevant seminars befre any prperty is acquired, there will be n deductin available Deductible OVER a NUMBER f YEARS

3 Brrwing Expenses deductible ver the perid f the lan where the lan is less than five years. Otherwise deductible ver five years. Expenses deductible include: Lan Applicatin fee Lenders legal fees Title search fees Lenders mrtgage insurance Stamp duty n mrtgage Mrtgage registratin fees Depreciatin n Plant & Equipment ATO calls it Decline in Value f depreciating assets Depreciatin n the building cnstructin ATO calls it Capital Wrks deductin Cst f installing any plant & equipment such Ht Water Systems are cnsidered part f the cst f system t be depreciated Set f assets e.g. dining table and 6 chairs is t be depreciated in accrdance with their effective life Each item cannt be separately deducted fr being under $300 NOT Deductible The fllwing items are either nt deductible r cnsidered t be f a capital r private nature by ATO On Purchase Purchase price Stamp duty n purchase Legal/cnveyancing fees Pest & Prperty inspectin Surcing Fee Renvatins immediately after purchase Repairs immediately after purchase On Sale f a prperty Legal/cnveyancing Advertising Agent fees Pre-Purchase expenses including (especially if prperty was nt purchased) Attending seminars t acquire mre prperty Cst f reprts n prperty prir t purchase Travel t inspect prperty prir t purchase Where the prperty was nt available fr rent, then all the expenses described abve are nt deductible Particularly relevant where the prperty is used as yur persnal hliday accmmdatin. Listing with agent and his dcumentatin helps prve its availability fr rental Cst f imprvements r renvatins can nly be depreciated ver 40 years at 2.5% p.a. Individual tax rates 2011/12 T help yu estimate the tax savings frm any expenses spent n the prperty belw are the individual tax rates and threshlds which applied frm 1 July 2011 t 30 June 2012.

4 2011/12 Rates - Resident Individuals incme frm Incme t Taxable amunt Rate n taxable amunt Tax Payable n clumn C % n excess (marginal rate) A B C=B-A D E=DxC F 0 6,000 6,000 0% 0 15% 6,001 37,000 30,999 15% 4,650 30% 37,000 80,000 43,000 30% 12,900 37% 80, ,000 99,999 37% 37,000 45% 180,001 45% 54, /12 Rates - NON Resident Individuals Incme frm Incme t Taxable amunt Rate n taxable amunt Tax n clumn C % n excess (marginal rate) A B C=B-A D E=DxC F 0 37,000 37,000 29% 10,730 30% 37,001 80,000 42,999 30% 12,900 37% 80, ,000 99,999 37% 37,000 45% 180,001 45% 60,630 When yu incur a rental expense, the tax savings is nt the ttal amunt but the amunt multiplied by yur marginal tax rate as shwn abve. Help available T make the cmpilatin & reprting task fr tax returns easier, clients f Prperty Tax Specialists received checklists and templates t facilitate the prcess... saving them time and mney... the write way is having clear dcumentatin. ATO way means time/mney wastage with pssible audit investigatin. If yu need help cntact Shukri Barbara at Prperty Tax Specialists at Shukri@prpertytaxspecialists.cm.au

5 3BWe lk frward t being f Service helping yu twards Prsperity & Peace f Mind Please d nt hesitate t cntact us if yu wuld like t review & discuss yur current prperty & tax situatin, yur asset prtectin strategy, structuring yur next investment prperty, planning t legally minimise yur tax psitin r just t prepare yur next tax return. We lk frward t being f service. We als lk frward t yur referrals. T imprve ur service we welcme all cnstructive cmments n this newsletter and ther materials. Fr help cntact Shukri Barbara at Prperty Tax Specialists at HUShukri@prpertytaxspecialists.cm.auU Disclaimer The material and cntents prvided in this publicatin are infrmative in nature nly. It is nt intended t be advice and yu shuld nt act specifically n the basis f this infrmatin alne. If expert assistance is required, prfessinal advice shuld be btained. Acknwledgement - parts f this newsletter have been taken frm Knwledgshp Pty Ltd client newsletters. Barbara & c Prperty Tax Specialists is a member f the Knwledge Shp and Hayes Knight Netwrk Kind Regards Shukri Barbara Winner Prperty Tax Specialist f the Year Readers Chice Awards Yur Investment Prperty Magazine Jan12 issue Tax Clumnist Smart Prperty Investment magazine Prperty Tax Specialists Prsperity & Peace f Mind Barbara & C cpa phne fax mbile pst: P.O.Bx 665 Chatswd NSW 2057 ffice Level 5 suite 509, Archer Street Chatswd NSW 2067 website < "Liability is limited by a Scheme apprved under Prfessinal Standards Legislatin