For anyone looking to grow their long term wealth, investing in property is ideal. It's relatively easy to understand, it's potentially highly lucrative and, compared to other investments, it is very flexible. Alongside these considerable benefits are the numerous tax advantages that come with property investment. These are just a few of the points you'll want to discuss with your accountant if you decide to invest in real estate.
Negative gearing
Even if your property is technically a money losing venture, you can make it work for you thanks to Australia's tax structure. If the expenses you're paying on your property - interest repayments, repairs, advertising - are larger than the income you're getting for it, you can offset the resultant loss against your other income to lower your tax burden.
Depreciation
Everything we own eventually decreases in value over time, and property is no different, whether it's a new or existing dwelling. But because your investment property is an income-producing asset, you can claim this depreciation in value against your taxable income. The two main types of depreciation are on plant and equipment - or the items within the property, such as carpets and appliances - and building allowance, which refers to structural features like concrete. You'll need a quantity surveyor to carry out an inspection and draw up an official depreciation schedule, typically between settlement and tenants moving in.
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Rental property expenses
Along with all this, the Australian Taxation Office (ATO) allows investors to claim a wide variety of expenses associated with running a rental property as tax offsets. This is a long list, but it includes expenses that come from:
- Advertising your rental property for tenants
- Council rates
- Water charges
- Interest payments on your investment finance
- Pest control
- Travelling to inspect a property or pick up rent
- Maintenance and repairs
This is just a small sample. The ATO lists many more expenses on its website, and if you're hoping to be a successful Australian property investor, it's worth taking a look. Just about any expense associated with running a rental property can be claimed for tax purposes.