Rental Property Expenses – when should I consider prepaying?

Umbrella Tax HousePrepaying expenses up to 12 months ahead are allowed as a deduction in the earlier year. In this case 2014.

Prepaying expenses increases your deductions, reducing your tax.

Most people prepay the following types of expenses

–        Rates – Council & water

–        interest

–        Body Corporate Fees

–        Bring forward Maintenance (ie) repaint,

Before prepaying deductible property expenses, it is wise to check on how your tax position may look for that financial year.

If you have investment properties – which are negatively geared (the interest and expenses are larger than the rental income) the negative component will be offset against other income such as salary, reducing your taxable income – reducing your marginal rate of tax and your tax liability.

In previous year, one of my clients had  a very low taxable income ($15,000). If they were to prepay expenses – bringing the deduction forward to 2013 year instead of leaving them for 2014 – they would lose money.

Why? Because at $15k taxable income – no tax is payable. From 1/7/2013 the tax free threshold has increased from $6k to $18.2k. So claiming more deductions will NOT produce more refunds. It will however lose the opportunity of claiming the deduction in 2014.

Tax Tip – review your personal circumstances before prepaying any rental expenses

Umbrella Accountants - Property Accountants Brisbane