Here Are 3 Important Tax Deductions For Investors You May Be Missing Out On!

As the end of the financial year (EOFY) approaches on 30 June, let’s take a look at some of the most important Tax Deductions For Investors in Australia.

The EOFY is when many investors assess their finances and maximise available tax benefits. While common deductions, such as mortgage interest on investment properties and depreciation, and brokerage costs on shared, are well known, several often-overlooked tax deductions could significantly reduce taxable income. This article explores three often-missed tax deductions and explains how to claim them correctly.

 

3 Important Tax Deductions For Investors!

Interest on Investment Loans

One of the most significant tax deductions available to investors is the interest paid on loans used to finance investments. While this is a well-known deduction for property investors, it’s important to note that the deduction extends beyond just property loans. Any loan taken out to earn income, whether for shares, margin loans, or other investment assets, is eligible for a tax deduction.

What You Can Claim:

If you’ve borrowed funds for investment purposes, you can claim the interest as a deduction. This includes interest on loans used to acquire real estate, shares, or other income-generating assets. For investors who use margin loans to fund share purchases, the interest paid on those loans is deductible as well. Additionally, if you’ve taken out a loan to finance other investments such as managed funds or business ventures, the interest on those loans can also be claimed.

In addition to interest, other borrowing costs may also be deductible. For example, loan establishment fees, ongoing account-keeping fees, and other administrative costs related to borrowing funds for investment purposes may all be claimed as deductions.

Common Mistakes:

Despite the clear guidelines, many investors fail to claim all possible deductions related to investment loans. One of the most common errors is the failure to properly apportion interest between personal and investment purposes. If a loan is used for both personal and investment purposes, only the portion of the loan used for investment should be claimed. Therefore, it’s essential to keep accurate records of how the funds are used to ensure only the correct portion is claimed.

Another mistake is failing to claim associated borrowing costs, such as loan establishment fees and account maintenance charges. These are legitimate deductions that can add up over time, but are often forgotten.

Action Steps:

To maximise deductions related to interest on investment loans, review your loan statements carefully to ensure all interest payments are documented. Keep detailed records showing how loan funds were used for investment purposes. If the loan was used for both personal and investment purposes, make sure you’ve correctly apportioned the interest. If you have any uncertainties about how to apportion loan-related costs, it’s wise to consult a tax professional for advice.

 

Investment-Related Expenses

In addition to interest on loans, investors can claim a wide range of investment-related expenses that are directly related to managing their investments. These expenses, which can be claimed in the year they are incurred, include a variety of costs associated with property management, share trading, financial advice, and more.

Immediate Deductions:

For property investors, common deductible expenses include property management fees, repairs and maintenance costs, insurance premiums, council rates, and pest control costs. Similarly, if you’re an investor in shares or other financial products, brokerage fees, financial advice fees, and investment-related seminars or subscriptions can also be claimed.

Other costs that are commonly overlooked include minor fees, such as bank charges, postage for sending documents related to investments, or even advertising costs associated with renting out a property. These seemingly small costs may not seem significant at first, but when accumulated, they can make a noticeable difference to your taxable income.

Common Oversights:

Many investors fail to claim certain smaller expenses simply because they don’t realise these costs are deductible. For example, minor expenses like banking fees, printing, or postage for investment-related activities are easily overlooked but can add up to significant savings over time.

Moreover, when it comes to mixed-use expenses (i.e., expenses that are partly personal and partly for investment purposes), investors often fail to correctly apportion the deductible amount. For instance, if you use a mobile phone for both business and personal calls, only the business-related portion can be claimed.

Action Steps:

To ensure you’re claiming all eligible expenses, review all your receipts and bank statements from the financial year to identify investment-related costs. This includes not only the obvious costs like property management fees but also small costs like postage, bank charges, and financial publications. For mixed-use expenses, be sure to maintain accurate records of the proportion of usage that relates to your investments. Keep a logbook for these expenses to substantiate your claims. If you’re unsure about the eligibility of certain costs, consult with a tax professional to avoid missing out on any deductions.

 

Superannuation Contributions

One of the most effective ways to reduce your taxable income while securing your retirement is by making superannuation contributions. Super contributions help you build wealth for retirement and offer immediate tax benefits by lowering your taxable income.

Types of Contributions:

Two main types of superannuation contributions can offer tax benefits:

Concessional Contributions: These are contributions made before tax, including both employer super contributions and salary sacrifice arrangements. The annual cap for concessional contributions is $30,000 for individuals under 49 and $35,000 for individuals 49 and over. These contributions are taxed at 15%, which is often lower than the individual tax rate.

Personal Deductible Contributions: In addition to employer contributions, individuals can make personal contributions to their superannuation and claim a tax deduction for them. This can be especially useful for those who are self-employed or want to top up their superannuation with additional contributions.

Catch-Up Contributions: If you haven’t fully utilised your concessional contributions cap in the past, you can carry forward any unused cap amounts for up to five years, provided your total superannuation balance is under $500,000. This can be a great way to boost your super in years when you have more disposable income.

Common Mistakes:

One of the biggest mistakes investors make with super contributions is exceeding the contribution caps. If you exceed the concessional contributions cap, the excess is included in your assessable income and taxed at your marginal tax rate. You may receive a 15% tax offset to account for the contributions tax already paid. Additionally, you can choose to release up to 85% of the excess from your super fund to help pay the tax.

Another common issue is failing to claim personal deductible contributions. Some individuals may forget to formally notify their superannuation fund of their intention to claim a deduction for personal contributions, resulting in missed tax benefits.

Finally, missing the EOFY deadline for contributions can be costly. To ensure that contributions are counted in the current financial year, they must be received by the superannuation fund before 30 June.

Action Steps:

To maximise your superannuation contributions, make sure you are aware of the concessional contribution caps and plan your contributions accordingly. If you haven’t made full use of your contribution caps in the past, take advantage of the carry-forward provisions to boost your super. Before making personal contributions, notify your superannuation fund in writing that you intend to claim a tax deduction. Ensure that your contributions are received by your superannuation fund well before 30 June to meet the EOFY deadline.

 

Final Thoughts

As the EOFY approaches, investors have a critical opportunity to review their financial activities and ensure they are making the most of available tax deductions. By claiming often-overlooked deductions such as interest on investment loans, investment-related expenses, and superannuation contributions, you can significantly reduce your taxable income and improve your overall financial position.

Key Takeaways:

Stay Organised: Ensure you have detailed records of all investment-related expenses and contributions.

Be Proactive: Don’t leave your tax planning until the last minute. Start early to ensure you claim all possible deductions.

Seek Professional Advice: For complex tax situations, such as apportioning interest or claiming deductions for mixed-use loans or expenses, consider consulting with a tax professional to ensure you’re making the most of your tax deductions.

By taking these steps, you can navigate the EOFY with confidence and optimise your tax outcome, securing your financial future and maximising your investment returns.

 

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FAQs

• What types of interest on investment loans can I claim as a tax deduction?

  You can claim interest on loans taken out for investment purposes, including property loans, margin loans for shares, and loans for other income-producing assets such as managed funds. If the loan is used for both personal and investment purposes, only the portion of the interest that relates to the investment can be claimed.

• What investment-related expenses are deductible?

  Common deductible expenses include property management fees, repairs and maintenance, council rates, insurance premiums, and pest control for investment properties. For share investors, expenses like brokerage fees and financial advice fees related to managing investments are also deductible. Additionally, investment-related seminars and subscriptions are eligible deductions.

• Can I claim tax deductions for superannuation contributions?

  Yes, both concessional contributions (pre-tax contributions made by your employer or via salary sacrifice) and personal deductible contributions (contributions you make to your superannuation fund) are tax-deductible. These contributions reduce your taxable income, helping to lower your overall tax liability.

• How do I claim interest on loans used for both personal and investment purposes?

  If your loan is used for both personal and investment purposes, you can only claim the portion of interest related to the investment. It is important to keep accurate records of how the loan funds are used, and if necessary, consult a tax professional to help you correctly apportion the interest deduction.

• What happens if I exceed the concessional superannuation contribution cap?

  If you exceed the concessional contributions cap, the excess amount is added to your assessable income and taxed at your marginal tax rate. You may also be liable for an excess concessional contributions charge if applicable.