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How can I reduce my tax in Australia?

Reduce your tax in Australia and get the tax man to fund your lifestyle.

‘One of the most popular wealth creation strategies is negative gearing an investment property’

How much you can claim in your tax return is an often overlooked element of property investment.

Because there’s two main reasons for that:

  • Investors don’t realise how much money they are missing out on by failing to claim.
  • They don’t understand it is a perfectly legal way of reducing tax in Australia.

We are talking about claiming depreciation

Depreciation is the amount the Tax office lets you claim as a provision for wear and tear on your property. Similarly the ATO allows owners to claim wear and tear against assessable taxable income for eligible investment properties.

The more deductions you can claim on a property, the higher your tax benefit. Therefore it makes sense to be able to claim as many deductions as you’re legally entitled.

What to claim to reduce your tax in Australia

The ATO allows property investors to claim rental and investment property depreciation deductions. Because these deductions are related to the building and plant and equipment items contained within it. As a result, there are more than 1,500 items identified as depreciable assets under capital works, including:

  • Built-in kitchen cupboards
  • Clothes-lines
  • Door and window fittings
  • Driveways
  • Fences and retaining walls
  • Garages
  • Sinks, basins, baths and toilet bowls

Similarly, deductions up to 35 per cent of construction costs of can be made to reduce your tax in Australia. These include things like carpet [and other removable floor coverings], hot water systems, air-conditioning, security systems, blinds, curtains and light fittings.

Depreciation is an after-thought for many investors.

However, it is often better to consider this information before buying to maximise savings. For example, a new property often has a lot more depreciation allowance than an older pre-owned property.

How to Claim if you want to reduce your tax in Australia

Investors need to complete a personalised tax depreciation schedule to claim depreciation deductions. Most people engage a quantity surveyor to do this for them who will provide an official report in an acceptable format. For that reason, deductions available on a specific property will be outlined in a depreciation schedule.

Your accountant uses this schedule each year when preparing a tax return.

Above all, by utilising the benefits of depreciation, you can turn a negative cash flow property into a positive one.

ASIC publishes a guide to income tax in Australia.

If you’d like to chat about finance, please contact us.

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