Over the years I have had many interesting ideas from clients about how they might reduce their tax bill. However, one of the most popular is purchasing an asset, for example, an investment property or car.

The concept of purchasing or spending a capital asset to reduce an overall tax bill was, and is at times, still a solid one.

However, in the realm of residential investment tax reduction is becoming close to a myth.

With residential ring-fencing in place, low interest rates and questionable shortterm capital gains, serious thought has to be placed on how you choose to spend your money. It should no longer be the thought of a tax refund that helps drive these decisions.

‘In the realm of residential rental investment tax reduction is becoming close to a myth’

What are you trying to achieve?

When purchasing a new investment, or improving or maintaining an existing property, a clear goal should be outlined.

Most commonly the three main goals are:

- capital growth

- rental yield

- hedging/diversification.

All three of these options have uncertainty, however capital growth has the most. So much so that in a number of cases we have seen significant capital growth but when compared to historical losses the gain was not as substantial as one might hope.

Investing in a property is one of the most significant uses of your funds. Therefore, it needs to be treated with the respect it deserves: it should be treated like a business.

These are some of the key tools successful businesses use to evaluate and track major decisions.

1. Plan or strategy document.

This will generally involve the following:

- An overarching goal, for example, to have enough income deriving assets to retire at 55.

- A plan on how to get there, for example, to purchase a certain number of properties, investments or a savings plan.

2. Cashflow “what if” spreadsheet.

This compares potential fluctuations in your circumstances, for example, capital growth, interest rate changes, maintenance requirements, or rental changes.

3. KPIs.

These are used to track the progress of your plan. For example, capital growth expectation, rental profit target, and equity expectations.

Putting this in place not only helps make clear decisions but also enables those decisions to be re-evaluated in the future and changed if required.

Even some of the simplest decisions can be evaluated in this structured way. For example, if you are considering spending $10,000 to renovate a kitchen, is the goal to improve the overall value? How much does the value need to increase to make it worthwhile? Is it to increase rental income? If so, are you going to talk to the tenant about increasing rents? Is it to get a tax deduction? Have you talked to your accountant about the tax effect of this cost?

All of these questions should refer back to your overarching plan. A plan that gives your financial life purpose and direction.

If you feel like you have no direction or have no long-term strategy, then contact Withers Tsang. We treat your property investment seriously. It’s your business, and we want to make it our business to help you succeed.