The principal aim of owning an investment property, whether it be to secure your financial freedom or simply have a little more cash floating around, is to make money. As a result, the more you can claim against your property as a deduction, the more income you’re going to be left with hitting your bank account at the end of the month.

There are a number of popular tax deduction strategies you can use to maximise your rental returns, some of which more popular than others. Read on to find out more.

What are Capital Gains?

Capital gains are any financial gains earned from a property that are more than that property’s base value. For example, if you bought a home for $200,000, did $50,000 of work on it and sold it for $280,000, you’d have made a capital gain of $30,000.

If the proceeds you get from the sale of your investment property are less than your base cost, you’ll have made a capital loss. In order to reduce the amount of Capital Gains Tax you pay, you should work to ensure your property’s expenses all fit within its base cost. Capital losses can also be applied from the previous year to minimise your tax liability.

What is the Base Cost?

The base cost of a property consists of the property’s stamp duty, borrowing expenses, broker fees, purchase price, legal expenses and capital improvement costs, as well as any auctioneer’s fees that may have been applied.

If you bought a rental property on or after 19th September, it will be subject to Capital Gains Tax. However, any capital gain that’s left can be cut below the 50% Capital Gains Tax discount if you’ve owned your property for longer than 12 months. Additionally, if it’s your principal residence, you may be able to make additional concessions.

You’ll be able to claim management expenses against the property’s investment income, which includes investment loan interest, insurance costs, real estate management fees, asset depreciation, water rates, costs of acquiring tenants including repairs, maintenance and advertising, and cleaning costs. Up until June 2017, reasonable travel expenses to keep the property running could also be claimed.

On top of this, if your investment property is in your name and not part of a leasing business, you can also reduce your tax liability on prepaid tax-deductible expenses, so long as the services you’ve prepaid for will be taking place in the next 12 months.

The information and links provided on this website are for general information only and should not be taken as constituting professional advice. This information does not take into account the financial situation or particular needs of individual readers. Before making any decisions about matters discussed on this website, you should consider whether it is suitable for you in light of your own circumstances, and seek appropriate advice.