Tax tip: Start in July

Reported by Peter Freeman

By Peter Freeman. Money magazine, June edition.

Property focus

Property investors incur a long list of expenses which, as with the costs incurred by everyone running any type of business, at least carry the compensation of generating some sort of tax saving. The main focus at the moment should be on those expenses that generate an immediate tax deduction in the financial year in which the outlay is made.

This is because it makes good sense to ensure that those outlays that need to be made in the relatively near future are incurred by June 30, so as to deliver a tax deduction in 2011-12 rather than the next financial year. The core expense that is immediately tax deductible is the interest paid on a loan used to finance the investment property. As noted elsewhere in this edition of Money some investors may decide to boost their 2011-12 deduction by prepaying 12 months interest.

Other immediately deductible outlays are the fees an investor pays to a real estate agent to manage the property, local council rates and the cost of insuring the building and its contents. Some investors also have to pay land tax.

Action that can relatively easily be both taken and paid for by June 30 include repairs and servicing, pest control, garden maintenance and travel undertaken specifically to inspect the property. Examples of repairs are fixing a broken window, leaking gutter or malfunctioning power point. In contrast, so-called replacements, such as installing new kitchen cupboards or a new bathroom vanity, usually can only be depreciated over time.

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