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Tax tips for property investors

Property investors can access a wide range of tax deductions and items subject to depreciation for their rental property yet many miss out on unknown tax breaks, foregoing an average of $20,000 a year on a $1 million house.

Here are four ways to maximise your tax deductions while complying with the tax office:

Use a quantity surveyor

Registered quantity surveyors can establish the value of purchased items and building construction costs by preparing depreciation schedules to maximise an investor’s claim.

Items as diverse as kitchen equipment, bathroom fittings, outdoor furniture, air conditioning and swimming pools are all legitimate claims. A quantity surveyor will ensure valuations of the items in the building are at market value, avoiding the need to explain any valuations that are higher than expected to the ATO.

The cost of using a quantity surveyor is also tax deductible.

Apportion expenses

It is common for investors to bundle a mix of properties under one single loan, i.e. the family home and a rental property may be funded by the same mortgage and expenses apportioned accordingly. However, having separate loans can increase deductions as the non-deductible debt can be paid down or even better linked to an offset account, with the deductible loan having full interest paid and claimed.

Immediate write-offs

An immediate write-off applies to items worth less than $300 and can be claimed in the current income year. Items such as garden gnomes, kitchen cutlery and ironing boards, irons are easily forgotten and all can be written off in the first year.

Depreciation

Construction costs can generally be ­depreciated at 2.5 per cent each year over 40 years for residential properties built after July 1985. This entitlement passes from one owner to the next whenever the property is sold. A quantity surveyor can provide an estimate if information is not available.

Many high value household items are now deducted using the “diminishing value method”, which means the most depreciation happens in the first few years. For example, ducted heating worth $4941 would have a first-year deduction of $493, rising to $2022 over the first five years.

Adding items such as solar lights, garbage bins, garden sheds, intercom systems and closed-circuit television systems to a low-value pool can open up ways to depreciate items at a higher rate, therefore, increasing immediate returns.

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News

Tax on super death benefits for dependants vs non-dependants

July 9, 2020

A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant.

Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be:

Dependants will not have to pay tax on the tax-free component of their super in the event that they:

However, they will be taxed at their marginal rate if they receive a capped benefit income stream and:

Not all super death benefits are subject to tax; for non-dependants, there is a taxable portion. This component is largely made up of after-tax super contributions that the deceased member has made.

Super death benefit payments are subject to tax when:

Non-dependants must calculate how much money in the super account is a:

The amount of tax non-dependants pay will be based on their marginal tax rate, however, this amount may be reduced by tax offsets. For the taxed element of the taxable component, the effective tax rate is your marginal tax rate of 17% (whichever is lower). For the untaxed element of the taxable component, the effective tax rate is 32% or your marginal tax rate (whichever is lower).