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Claiming tax deductions on investment properties

If you own a rental property or are considering purchasing an investment property, it is important to be aware of the tax deductions you can claim. Claiming all of the legitimate deductions on your investment property can save you a lot of money. On the other hand accidently claiming illegitimate deductions can cost you a lot of time and energy, potentially even leading to an investigation by the ATO.

There are some immediate deductions that you can make on a rental property, for example, advertising fees, agent costs, repairs and administrative expenses. Legal fees that are directly related to renting a property, for example those associated with debt recovery, may be claimed. However, you may not claim legal costs incurred at other times, for example the solicitor’s fees when you purchased an investment property.

There are also long term costs associated with investment properties that you can claim as deductions. These include borrowing costs, depreciation on equipment and deductions on structural improvements.

Many costs associated with the loan you have taken out on an investment property are legitimate deductions, but interest on the loan is not. Examples of legitimate costs include mortgage registration, stamp duty on mortgage and loan application fees. These deductions are applicable to loans of five years and under (for longer loans the deductible period is limited to five years).

As the value of the equipment with a limited life, for example carpet, depreciates you may claim this as a tax deduction. The ATO website has a list of the depreciation rates on different moveable household items. The entire cost of items under $300 may be included in your depreciation claim.

If you have spent money on an extension, structural improvement or renovation for your rental property then this cost can be claimed as a long-term deduction (usually 2.5% p.a. over 40 years). This does not cover work done immediately after purchase, and you can only claim this for periods that the property has actually been rented out.

Posted on 5 June '14 by , under Tax.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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