Tax benefits of investment property

It’s that time of year again – tax time. The good news is that there are smart ways to get tax benefits if you are interested in building wealth through property. We asked Accountant Chris El Moussalli from Walker & Co a few questions on possible ways to get maximum tax benefits…

1. There has been a lot of talk about negative gearing in the media recently. Can you please explain how negative gearing works?

Chris: Negative Gearing is basically the taxable expenses of owning a rental property being greater than the taxable income received from holding a rental property.

Whatever the negative figure is, is offset against any other income therefore increasing the refund.

2. Do I have to wait till the end of the financial year to get this money from the tax-man?

Chris: No, you can get a tax variation from your weekly tax being withheld, giving you more net pay in your pocket each week.

3. Can I pre-pay a year of interest and claim it in that year? If so when would be a good time to do this?

Chris: Yes you can, people usually prepay interest in the month of June for the following 12 months.

4. Are there any benefits for purchasing a brand new investment property, as opposed to established, from an accounting perspective?

Chris: Yes, the main advantage is you can claim 2.5% depreciation each year for the cost of construction, which you can’t claim on an old property.

5. If I were to purchase an investment property in my Self-Managed Super Fund what are the main tax benefits?

Chris: There are negative and positive aspects of buying property in a super fund.
A few benefits are that if it is positively geared you are only paying tax of 15% on the profit rather than at your marginal rate.

The main benefit is when you turn the super fund into a pension fund you don’t pay any capital gains tax.

Summary: Tax benefits of investment property

Tax refunds from negative gearing can be received weekly
Tax can be pre-paid and claimed in the same year (reducing the amount of tax you pay)
New property purchases allow depreciation to be claimed (but not for old properties)
SMSF funds may provide valuable tax benefits.

Please contact Chris if you’d like to review your personal situation and work out how you could get tax benefits from property for next financial year.

Thank you Chris, and as always, feel free to contact me, if you’d like to discuss your property strategy.

Regards, Nick

About Chris

Chris El Moussalli has been helping clients at Walker and Co since 1992 and has been a Director since 2008. He and his team of 6 give clients peace of mind by taking care of their individual tax returns as well as company, trusts, partnerships, superannuation financials.