CLAIMING tax deductions for a property investment should be straightforward .

By MICHELLE BALTAZAR

Theoretically , you should be able to claim against any expenses you made in maintaining the property . Unfortunately , it ’ s not that easy . The Australian Tax Office ( ATO ) released a guide on the common mistakes that firsttime property investors make when they are fixing their books .

This included :

• Incorrectly claiming deductions for properties only available for rent part of the year .

• For example , if you are staying in for part of the year or using the property as a holiday home .

• Incorrectly claiming the cost of structural improvements as repairs when they are capital works deductions .

• For example , you can ’ t claim against

remodelling a bathroom or building a pergola because , under tax rules , these don ’ t fall in the definition of repairs .

• Overstating deduction claims for the interest on loans taken out to purchase , renovate or maintain a rental property .

Make sure that you ’ re not claiming interest against the private portion of your loan .

According to the Australian Tax Office , there are two types of expenses you can make a claim on :

First , you can claim the expenses for the year you paid on : 1 . council rates 2 . repairs 3 . insurance 4 . loan interest

Secondly , expenses that are deductible over a number of years such as : 1 . Borrowing costs 2 . Creating structural improvements and 3 . Costs of depreciating assets These last three can be quite complicated , so just ask your accountant about how to calculate them .

If you need more information , ring 1300 720 092 and ask for a booklet called Rental

properties 2007 or download it on www . ato . gov . au .

If all else fails and you want to talk to someone , contact the Tax Office about deductions for rental properties on 13 28 61 .

Trivia : In 2006 , over 1.5 million people claimed more than $ 24 billion in rental deductions in their tax returns . Some 170,000 individuals claimed deductions for the first time . Source : www . ato . gov . au •

ARE you thinking about investing in property this year ? One of the reasons why investing in property helps you to build wealth is that it offers you various tax deductions .

But many first-time investors are unaware of all the tax deductions that may be available .

One of the tax deductions you can claim on your investment property that is frequently overlooked , particularly by first time investors , is depreciation .

For this you need to organise a depreciation schedule when you purchase the property , so you can start claiming the tax break as soon as possible .

In this article we explain what a depreciation schedule is and how to obtain one .

DEPRECIATION occurs as an item ’ s worth becomes less over time as it is used and it wears out .

When you ’ re talking about a tax deduction , depreciation is a method of allocating the cost of an item over its useful life .

For example , if your property has an oven

By JERONE BALAGTAS

that is valued at $ 1,000 and has a ten year life , you can claim $ 100 against your taxable income for 10 years on that individual item . With an investment property , you are only allowed to claim depreciation on certain items against your taxable income .

There are two types of depreciation tax deductions that you can claim :

• Depreciation on plant and equipment : this refers to items within the building like ovens , hot water heaters , air conditioners , carpets , blinds and so on .

• Depreciation on buildings or ‘ building allowance ’: this refers to the construction costs of the building itself , such as concrete and brickwork .

A DEPRECIATION SCHEDULE . In order to make a tax claim for depreciation , you need a report that identifies all the things that may be claimed against your tax and the current value of each item .

The report must separate all the different items into the two categories mentioned above , and each item depreciates at a different rate .

Each property will be different from the next and will contain a wide variety of different items that fall into these categories .

The amount of tax benefit you receive will depend entirely on the property you purchase .

Many experienced property investors will deliberately choose properties that will give them the most depreciation benefits .

WHEN TO GET A DEPRECIATION SCHEDULE . You should create a depreciation schedule as soon as possible after settlement , preferably before tenants move in .

This will allow you to maximise your tax benefits and will help you to avoid causing disruption to your tenants .

If you didn ’ t get a depreciation schedule when you first purchased your investment property , you can still get one now and start claiming your deductions moving forward . HOW TO CREATE A DEPRECIATION SCHEDULE . When you purchase a property , all the assets within the property are not itemised by value .

What ’ s more , the government will not take your word for the value of the items .

That means you can ’ t create a depreciation schedule yourself .

In order to claim any tax deductions , you will need to employ a qualified Quantity Surveyor to do a thorough inspection to identify what can be claimed and to make

valuations in order to create a depreciation schedule for you .

This is the only way you can legitimately claim tax deductions for depreciation .

If you purchase a brand new property , preparing a depreciation schedule is much easier as the value of the items can be easily determined .

If you have an older property though , things become more complicated and that ’ s another reason why it is important to use a reliable professional .

A quantity surveyor will prepare your depreciation schedule report with a view to maximising your financial position in relation to your property assets . And their fees are fully tax deductible . This article looked at just one way you could benefit financially from purchasing an investment property , but there are many reasons you may want to invest . •

Jerone is a local successful Filipino mortgage broker and one of the Executive

Director of the One Solutions group , he has 16 years experience in the accounting / finance / banking industry . He walks the talk as he is a successful avid property investor himself . Jerone encourages anyone to contact him regarding questions pertaining to home loans , investments and finance in general , e-mail at Jerone . BALAGTAS @ onelending . com . au or 0439 594 899 .

Jerone can help you with your home loan and help you build wealth .