Savvy Australian property investors can save a large amount on their tax bill by deducting associated expenses.

Negative gearing allows property investors to claim any shortfall between their income and expenditure on an investment property as a deduction against their total taxable income.

Most property investors are aware of the usual expenditure deductions that they can use to offset any income earned by an investment property. Regular costs such as maintenance, repairs, interest on loans and management fees can all be used to offset rental income.

However, there are a few lesser known tax strategies that property investors may care to look at as June 30 approaches:

Refinancing your mortgage

Refinancing your mortgage usually incurs a couple of one-off costs and fees. Investors who are planning on refinancing their mortgage may care to consider doing so before June 30 in order to claim these costs as a deduction in the 2015-16 financial year.

Pre-pay interest

Property investors who have sufficient funds to pre-pay interest on a loan can do so and claim the deduction in the current financial year. It is also possible to pre-pay (and claim a deduction for) your upcoming property insurance premiums.

Bring forward maintenance expenditure

If there are maintenance tasks that you know will need to be completed on an investment property, then you may wish to complete them before June 30 in order to minimise your tax bill in the current financial year.

Stay on top of your paperwork

Make sure that you are aware of the depreciations on any fittings or repairs, as well as any other costs you have incurred, for example, strata fees, management fees or rental losses.

Property investors are highly advised to discuss their tax situation with an accountant to ensure that their activities are compliant and that tax savings are maximised. 

          

If your negatively geared property is beginning to create some serious cash flow problems, there is a way you can access the large tax breaks it provides before the end of the financial year.

Specifically structuring an investment property to take advantage of negative gearing is a popular strategy for investors wanting to achieve significant taxation benefits. However, since investors are subject to normal withholding tax from their weekly pay, these benefits often remain with the ATO until investors lodge their annual tax return.

While that may work for most tax deductions, it can sometimes create cash flow problems for property investors with large tax breaks who cannot afford to wait until the end of the financial year.

Applying for a Tax Withholding Variation

Lodging an Income Tax Withholding Variation (ITWV) application with the ATO is a viable means of allowing investors to access these tax benefits every week (when they are most needed) to help relieve pressures such as cash flow restrictions.

An ITWV, previously known as a Section 221YD variation, is an annual application investors can send to the tax office, requesting to vary the amount of tax withheld from their salary each pay period by their employer.

The ITWV is valid for a whole financial year i.e. 1 July 2015 to 30 June 2016. If lodged part way through the financial year, it takes into account the tax amount withheld from an investor’s salary to date of the application. ITWV applications need to be renewed on an annual basis if investors wish to continue varying the tax withheld from their salary each financial year. Once approved, investors will have their weekly PAYG reduced for each pay period.

There are a number of circumstances where an ITWV may be appropriate, and sometimes necessary for those who want to reduce their pay as you go (PAYG) withholding rate for the year ending 30 June.

The tax office usually processes ITWV applications within ten working days, but it is worthwhile lodging applications at least 14 days prior to an existing variation from expiring.

Once the ATO has processed an ITWV, they will notify the investor’s employer of the “varied” amount of tax to be withheld from their pay each pay period. Those who change jobs during the year will need to submit a new application to the tax office.