5. Business Acumen

Income Tax Deductions*

As indicated previously, it may be possible to make considerable tax savings through investing in residential rental property. Following are a few of the items for which taxation deductions can be made, however it is always wise to check with your accountant before making a claim of any nature. You will have to keep documentary evidence of your outlays to substantiate your tax claims.

* Subject to current tax laws.

Interest

If you take out a Suncorp loan to purchase an investment property you may claim the interest on the loan as a tax deduction. Similarly, you may be entitled to claim the interest on any loans used to purchase items for use in the rental property such as a refrigerator, furnishings or carpet. The important thing to remember is that you can only claim a deduction for interest that is incurred in order to earn income from the rental property.

Other Deductions

In addition to interest payments there are a number of other investment property costs that are tax deductible and may allow you to make significant tax savings.

Building allowance

On any residential income producing property used for assessable income producing purposes built after September 1987, a building allowance of 2.5% of the original qualifying construction cost may be deducted every year for 40 years while you own the property, regardless of the resale price. The allowance is 4% (25 years) if construction commenced on or after 18 July 1985 and before 16 September 1987.

Depreciation

Assets such as appliances, furniture and fittings, carpets, curtains, etc. can be depreciated over their effective lives and used to offset income from other sources.

Outgoings

Outgoings include costs which are incurred in managing or the running of your residential investment property. These include agent's commission, the cost of professional services such as accountant's and solicitor's fees, insurance, rates, repairs and maintenance, cleaning, gardening - plus the cost of your travel and car expenses for inspection of the property.

However, if the property is not available for rent for the full year, some of these expenses may need to be apportioned on a time basis. This is particularly important to remember if the property is a holiday home or unit and is reserved from time to time for your own, or your family's, use. Again, you should check with your accountant or professional adviser on the deductibility of outgoings.

P.A.Y.G. taxpayer benefit

If you have a negatively geared investment property and are an employee having regular P.A.Y.G. instalments deducted from your wages, you can apply to your local tax office for a reduction in your P.A.Y.G. withholding tax instalments using an income tax withholding variation (ITWV) form. We recommend that you seek advice regarding whether this may suit your own circumstances from your tax advisor prior to making any such application, as there can be penalties imposed in the event of mistakes.