Property News, Insights & Education

    Deductions to Mitigate Tax on an Investment Property

    Everyone wants to make more money but there’s one thing that comes to mind when people envision higher or supplementary earnings - and that’s tax.


    It’s one of the certainties in life, and can sometimes even act as a deterrent to prospective investors looking to create passive income.


    But we’ve got good news for property investors. There are ways in which an investment property can help to mitigate income tax, and maximise your net returns.


    Here are the most common deductions that property investors can claim.




    Anyone to ever hold a home loan with a bank will be required to pay interest. It’s a drag, but the good news is that it’s tax deductible.


    Property investors can claim any interest paid on their investment mortgage as a tax deduction.


    They can also claim fees associated with the loan, such as loan maintenance fees, any costs to set up the loan, and any redraw or offset account fees.


    Building depreciation 


    The dwelling part of your investment property will, like all other tangible assets, naturally depreciate in value over time. This is due to the inevitable deterioration of assets, as they undergo general wear and tear.


    But depreciation can be a good thing for property investors, as it can substantially decrease your tax bill at the end of the financial year.


    To claim building depreciation, you will need to engage a quality surveyor, who can devise a depreciation schedule.


    The building also has to have been built after 17 July 1985. 


    Claiming building depreciation differs between older and newer buildings too. Newer buildings generally provide more opportunity to claim plant and equipment depreciation, and older buildings don’t allow for this, unless it was purchased by the investor themselves.


    Maintenance and repair work


    When renting out your investment property, you’re required to maintain it to a liveable standard. 


    This means employing trades to carry out maintenance and repairs when needed. 


    An unexpected maintenance bill can be a costly shock, but the bright side is that maintenance and repair work carried out on your investment property can be claimed as a tax deduction.


    Whether it’s a plumbing bill, a new appliance, or a locksmith - be sure to hold on to any receipts and claim the expense at tax time.


    Strata fees and council rates


    One of the greatest deterrents to purchasing an apartment or townhouse is the obligation to pay strata fees. 


    In NSW they can range anywhere from 0.3 to 1.2 percent of the property’s value, and they contribute to the general maintenance of common areas, and other ongoing costs like insurance.


    But guess what the good news is? Yes - they’re claimable. 


    Property investors can claim strata fees and council rates on their tax return, in addition to utility bills.


    Property management fees


    Some property investors question whether a property manager is a worthwhile investment, but we think they’re worth their weight in gold.


    A property manager takes care of everything to do with renting out your property, from advertising for tenants, to dealing with maintenance requests. They have the connections to find tenants faster, and they spend their time so you don’t have to.


    According to Finder, property manager’s generally charge between 7 and 10 percent. But what’s even better is that they’re a claimable expense.


    Accounting costs


    To maximise your return on investment, it’s important to engage with a licensed tax professional, and preferably one who specialises in investment properties.


    Gaining their advice prior to investing is essential to mitigating risks, but also during your investment journey. As property investment can be a complex matter, utilising a professional tax agent to take care of your tax return means that you’ll be able to claim all of the deductions you’re entitled to, like the ones listed here.


    And the good news is that accounting costs are tax deductible, too.


    To get in touch with a property specialist, to guide you through the investment process, contact a Freedom Specialist today.