Minimise the amount of tax paid on rental property investment

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As an investor, you’ll want to minimise the amount of tax you pay on your rental property and ensure the process of completing tax returns run as smoothly as possible. Here are some tips to help.

1. Keep paperwork in order from the start. Record all up-front expenditure when buying your investment as initial expenses form part of the property’s cost base and can help cut capital gains tax when you sell. Carefully file all investment-related receipts throughout each year to minimise headaches at tax time.

2. Pre-pay interest and other expenses if it makes sense for you.

3. When considering whether to repair or replace an appliance or fixture, remember repairs can be claimed in the tax year in which they were incurred while replacements often need to be depreciated over the item’s lifespan. This could make a difference to your investment’s costs and your annual tax bill.

4. Consider obtaining a depreciation schedule. These do cost but they may allow you to claim deductions for capital works and assets such as appliances that save thousands in tax over the time you own the investment. 

5. Handle tax in the same way as the names on the property title: if the property is held equally in joint names, for example, you both need to declare half the income and claim half expenses in your tax returns.

6. Beware of redrawing on your investment property mortgage for personal use. This changes the amount of interest you can claim as a tax deduction and may affect whether your property is positively or negatively geared.

7. Try to time the sale of your investment property so it settles in a year when your taxable income will be lower. This might mean waiting until you retire, take a break from work or start a business, for example.

8. If you plan to dispose of a loss-making investment, try to sell in the same year as a profit-making investment property so you can use the loss to reduce your net capital gain, and therefore your tax bill. Remember to offset capital losses from previous years against current-year gains.

9. Seek advice before buying property through a self-managed superannuation fund. There can be tax advantages but there are fewer benefits to negative gearing through super. There are also restrictions on what you can do with your rental property that don’t apply to investments you directly own – such as renovating and renting to relatives or friends.

10. Seek professional tax advice to ensure you’re claiming all you’re entitled to. 

To download a free ebook on new financial year taxation tips for property investors, click here.