Episode 2 - The Numbers Behind Property Success in Australia: Maximise Returns, Minimise Risk – with Chris Smith

The Numbers Behind Property Success in Australia: Maximise Returns, Minimise Risk – with Chris Smith

📢 Episode Synopsis
 In this insightful episode of the Real Estate Investment podcast, host David Chehade, CEO of REIF, is joined by Chris Smith, founder of Future Growth Tax—one of Australia’s leading property-focused accountancy firms. Together, they unpack the crucial accounting strategies every Australian property investor needs to know in 2025 and beyond.

🧾 What you’ll learn in this episode

• How to maximise your tax benefits through strategic tax depreciation
• The smartest ways to structure your property loans for flexibility and long-term growth
• Choosing the right repayment strategy—interest-only vs principal & interest, and when to switch
• The latest ATO updates that could impact your cash flow, deductions, and compliance in the new financial year

Whether you're a first-time investor or scaling your portfolio, this episode is packed with actionable advice to help you build wealth smarter, not harder.

🎧 Tune in now and make accounting your secret weapon in property success.

*Offer: Two months free property management in Queensland for new clients at Real Estate Investment Property Management. Take advantage of the offer by emailing marketing@reif.com.au. *Criteria applies, limited time offer expires Monday 30 June 2025.   

Transcript

[00:00:00] 

Hey everyone, Welcome to the Real Estate Investment Podcast with David Chehade, CEO and founder of Real Estate Investment Finance, and today I'm super, super excited to have Chris Smith with us. Chris comes on an extensive accounting background over 26 years, got his masters in accounting and helping thousands of clients over the years with all things tax.

They say tax isn't sexy, but today we're making it sexy. We're gonna chat tax strategy. How do we get more of that money in our pocket? They talk about tax being one of those things where there's only two things that are certain in life, it's either death and paying tax, but how do we reduce our tax legally?

How do we get ourselves in a better position? So guys, today we're gonna be chatting to Chris, a world full of knowledge to see how we can get some of that back into our pocket, you know? We were talking earlier, Chris, most people work over one day, about one and a half days on average a week just to pay the tax man.

Man, it's wild, isn't it? 

[00:01:00] 

Chris Smith: Yeah, you're right mate. One and a half days. It's pretty, uh, depressing to think about, but you know, we've all gotta pay tax in Australia, but let's work, work together and help your, uh, your clients and your uh, um, people watching the podcast to save tax. 

Amazing. So how can Aussies get more tax money back in their pocket through investing?

How does that work? 

Chris Smith: Well, investment in property is very tax effective. It's one of the best tax effective vehicles that there is. Basically when you purchase a property, you're able to claim all the running costs and interest deductions associated with purchasing that property. What does that do? That reduces your taxable income.

And what does that do? That increases your tax refund. That's a good thing for most, most people. Um. The key is this, the tax department legislation we're talking about. They're not gonna tell you what you can and can't claim, and you are gonna leave a lot of money on the table if you don't claim everything you can.

So it's very important that you are in touch with a professional and know everything that you can claim so that you do not leave that money on the table. 

[00:02:00] 
So, yeah. We'll work together with a lot of clients to make sure that we claim absolutely everything that's allowed. Um, one of the biggest deductions that is left on that table is depreciation.

It's a non-cash genuine deduction, and in a lot of cases it can be quite huge and make a big difference to your tax refund. Non-cash depreciation works as follows. There's capital works depreciation, which is the depreciation allowable on the building cost. That's at 2.5%. Over 40 years. Then there's the plant equipment depreciation, which is allowable, which is carpets, air conditioner units, all those sorts of things which you can claim a tax deduction on.

Now these are non-cash items, so it's not outta your pocket, it's just an allowed deduction that you're allowed to, including your tax return and obviously increase your refund. 

That's massive, isn't it? Oh, it's, it's huge. 'cause most people, when they typically do their tax returns, they're thinking, okay, great, I earn a certain amount of income.

[00:03:00]

What can I deduct off my tax return to reduce it? That's usually money that they spend on items. 

Chris Smith: Yeah. It's a big gold mine. Yeah. For example, if you kind of claim allowed to claim seven grand in capital works deduction. Yes. The building cost depreciation. Yeah. And say another 11, 12 grand in plant equipment depreciation.

Yeah. That could equal four or five grand tax refund that you are just missing out on. Based on the marginal tax rates in Australia. 

And that's money they're not actually spending. But the ATO is allowing you to claim, correct. How cool is that? It's an allowable claim. Yes. The ATO are not going to say, Hey David, you forgot to include your depreciation in your tax return.

That's not the way the system works. 

The average Australian doesn't know this out there. They don't understand how this works. Correct. So it's massive, isn't it? It's huge. It's huge. And how does it work when it comes to the different property types that the clients can buy and how, you know, is this applicable and is it, does it relate to a different.

Depending what they purchase. Yes. 

 [00:04:00]

Chris Smith: Good question. Yeah. Thank you. Um, well, new builds, yes. So a new newly constructed property has the greatest, uh, deductions as far as depreciation is concerned. You're allowed to claim, again, the capital works  deduction costs or at 2.5% on the, on the build cost, as well as the plant and equipment depreciation, which is at different rates depending upon what piece of an item it is.

Carpets, air conditioning, et cetera, with a secondhand purchase. The ATO on the 1st of July, 2017 no longer allowed any deductions as far as the existing plant and equipment or if it's already been built and it's been claimed as a depreciation item. So it's very important that you are selective with your property that you select.

Um, because obviously new builds, there's a lot more depreciation deductions there, which is again, a non-cash expenditure deduction. So you need to be very careful with your selection there because unfortunately. The ATO ruled out those secondhand purchase deductions in 2017. You can still claim the bill cost at 2.5%, but those plant equipment deductions, which are usually a lot higher at a higher tax rate, have now been removed.

So yeah, it's very important that you assess those things. 

[00:05:00] 

Huge. A and yeah, it's huge. You know, a big thing is as well, um, you know, we, we tell our clients all the time, it's like, you know, you make a decision when it comes to investing. Based on the numbers, not on emotion. And we find a lot of people when they're looking to invest, they're feeling into what feels good and it's the house up the road that they can see and view.

And it's not the numbers. And you know, it's realizing that the numbers are what you're doing it for. It's the passive income, it's the financial goals. And 

Chris Smith: you a hundred percent mate, 'cause you just said. Earlier on, you work five days a week and you know, three and a half of those days you get to keep the money.

Yep. In essence. 

Yep. 

Chris Smith: Uh, after tax. Wouldn't it be nice to, you know, you gotta create that position for yourself when you get older. Yep. 

David Chehade: You get older, you get tighter. Yep. You don't have the energy to work. Um, as you used to. So you need to start creating that passive investment income stream. Yes. As young as you can.

Yes. So that later on in life you can just sit back and put your feet up. 

[00:06:00] 

That's what it's about, being able to, it's about that freedom to live life on your own terms and looking at the depreciation and the tax benefits that you can get on a new versus an old. We always say, well, compare the numbers.

What's a better property to buy? And we do find being able to claim those additional deductions. You know, in some cases the property could be $200 a week outta pocket instead of what could be 400. 'cause you're not able to really maximize them. So it, it all comes back down to, you know, the numbers and, and driving those, the numbers decisions.

Um. 

Chris Smith: Obviously when I do a lot, I do a lot of tax returns in the property investment space. Yeah. New builds. Obviously you're not gonna have much in the way of repair and maintenance. Yes. Um, you're not gonna have all those worries with the used property that you would have. 

David Chehade: Yeah. 

Chris Smith: Uh, as we discussed, you're gonna get larger tax deductions.

Equals larger refund, and at the end of the day, it's also about property growth. 

How good. So average person earning a hundred thousand dollars a year. Give us a practical example on how buying a new property can help them reduce tax and what it means on their bottom line. Just some rough indicative figures.

[00:07:00]

Chris Smith: Rough indicative figures. Yes. So, so for this year, for example, if you are in that example, yes. A hundred thousand dollars. Yes. You purchase a property. With the  depreciation, all the other allowable deductions that you're included in your tax return. 

David Chehade: Yes. 

Chris Smith: If that reduces, has a say, overall available deduction of $20,000.

Your new taxable income is $80,000. Right? 

David Chehade: Wow. Yep. 

Chris Smith: That means you're only paying tax on 80,000, not a hundred thousand. So roughly speaking, the tax rate there is effectively 34 cents in the dollar. So in that example of that 20,000 deduction, you'll roughly get six to six and half thousand back. On your returns.

Um, obviously we're just talking rough numbers here. Yeah. But yeah, it's, and what do you do with that money? Obviously that's gonna lead into a little bit further down the road with us, but yeah, you can certainly use that money to pay down your principal place of residence and do other things like that.

Yep. Amazing how good's that, so if I've got that right, you can get 20,000, let's say on that example, tax free by owning one investment property after it's geared negatively. Correct. So let's say you had two or three. Oh yeah. Can we amplify that? 

 [00:08:00] 

Chris Smith: You canamplify it. Yes. A hundred percent. Yeah. So if, if you've got three properties Yes.

And they're negatively geared to say in this example 60 grand. 

David Chehade: Yes. 

Chris Smith: You are certainly gonna amplify your tax refund. 

David Chehade: Yes. 

Chris Smith: And you know, you're gonna put yourself in a position where you've got three properties, which in essence, you've got the ATO assisting you to pay off 

David Chehade: Yes. 

Chris Smith: Or contribute to your future investments.

Yes. So it's, it's a, it's a gimme from the, from the tax attack. So 

on that example, owning a hundred thousand dollars a year. You could pay tax only on 40, having 60 tax freebie by being able to have three. Correct. That's massive 

Chris Smith: in that initial, obviously at the first few years, yes. That appreciation is higher.

Yes. 

Chris Smith: With a new build. Yes. Obviously. And that will, um, obviously go down as the years go by. 

Yep. 

Chris Smith: But yes, you're correct. So it's a really good vehicle to start. In essence, stacking properties to put yourself in a position where, as we discussed previously, you're set for your retirement. Love that. 

Now, you mentioned earlier, funneling that money into ways to build wealth.

 [00:09:00]

What's the optimum loan structure to be able to maximize tax deductions from your experience? 

Chris Smith: From my experience, it's, it's having an offset account. Now the key with an offset account, meaning you'll have the loan and any additional payments that you wanna make, you'll put into that offset account. Now remember, the investment loan, the interest is a hundred percent deductible on an interest only loan facility.

There's two types of loan facilities, principle and interest and interest facility. Most investors will do an interest only facility initially. Uh, why do they do that? Sensible. Um, sensible advice to most people is to do that initially, is to maximize your interest deduction and also give you that. Extra income in your pocket in that offset account so that you can target, say for example, your principal place of residence.

[00:10:00]

Yeah. There's no tax deduction on that loan, so focus on targeting that or pivot and start examining additional properties with that additional cash flow you have.  So the offset account does give you the capacity to use that money as and when you wish. I don't advocate for paying extra initially against your investment loan.

David Chehade: Yep. 

Chris Smith: Because what happens from a tax accounts perspective, which makes it a bit of a difficulty for us, if we're trying to calculate your interest deduction on your loan and you've put some money in, taken some money out, buy something personal, it makes it really difficult for us to calculate, well, what is the allowable deduction?

Because from the ATO standpoint, any loan. They don't care what, what way it's structured. It is all the tax deduction relates to what is its purpose? 

Yes. 

Chris Smith: Okay. So if its purpose is only 80% related to the property investment and 20% you went and bought a boat, then obviously only 80% of that loan is gonna be deductible.

So it does keep it very simple. If you have an offset account, there's no restrictions on you pulling the money back out. But what happens in an offset is obviously you're not paying interest. 

[00:11:00]

Yeah. And what are we offsetting home? The  investment. 

Chris Smith: Well, you wanna offset your home loan first and first and foremost, because that's non-deductible debt.

David Chehade: Yes, 

Chris Smith: non-deductible debt after that. After you've obviously worked very hard and paid off your home loan or paid down a fair lump sum of that, you also want to continue to target additional sensible investment property acquisitions to continue growing your property portfolio. 

Brilliant and principle and interest on investments versus interest only.

Chris Smith: Yeah, p and i, so as I said before, what's happening with a p and i is you're paying down a little bit of the principle of the loan. Whilst you're making their repayments, the repayments are higher. So it does impact your cash flow and, and your day-to-day living. Um, interest only. The repayments are lower and obviously that what, why most people, most investors like to move into that space, as I said, is to, it gives you that more flexibility with your cash to make considerations about, as I said, paying down your PPR - principal place of residence.

[00:12:00] 

Yep. Or making future investments. It doesn't. Tie you up, so to speak. 

Makes sense. That additional cashflow, you wanna be able to funnel into the offset to pay that home loan correct. As quick as possible. Correct. Because you're not getting your tax deduction there. That's right. That's the top priority there.

Top priority. And that's how we can see people going to pay their mortgage off instead of the typical 30 years. Yep. The banks want to tell you to do it, you know, where we can see them paying it off in seven, 10 years, um, and sometimes less by having those right structures there. So. Correct. Correct. 

Chris Smith: And, and, and obviously as we discussed with those tax deductions, you're speaking about.

If you're getting an extra 5, 10, 20 grand in your pocket, you're gonna direct those funds towards that principal place of residence if you have that debt. Again, as you said, it's the non-deductible debt. Yeah, and it basically enables you to snowball the effect of paying down your principal place of residence and building your asset portfolio.

[00:13:00] 

Brilliant. We're gonna wrap up with ATO changes. Anything recent, we should all know about what's happening in that world that might impact investors in terms of what they can deduct, structuring their loans, any, any updates in that world? 

Chris Smith: Yeah. The ATO, obviously they're, they're always considering what people are claiming as tax deductions.

Um. You know, right or wrong, but what's changed lately, they are specifically targeting purpose of use loans at the moment. What I mean by that is, um, as I discussed previously, muddying the waters a bit with your investment loan. Um, meaning you draw down some personal use debt on that investment loan.

They're starting to target those areas to make sure that you are not claiming a hundred percent of the interest costs. On that loan when, when in essence you might've gone and bought a boat using a hundred K outta that investment loan facility. They're big time targeting that. They're targeting also depreciation as well.

That's why I highly recommend and so do you, to get a depreciation schedule report done by a quantity surveyor so that you're not overstepping the boundaries of what you can and can't claim. 

Those. So many investors don't know that they don't have them. You know, it's one of things when the property's built.

[00:14:00] 

Chris Smith: But when you acquire the property, please can't emphasize enough. It's a one off cost. Well, and tens of thousands of dollars left on the table not doing that one step. 

Chris Smith: They charge what? Five, $600? Yes. And it's gonna save you thousands and thousands of dollars. 

The importance of having the right accountant on your team.

As a property investor, we always talk about having the right team there. And you need the right mortgage broker, you need the right accountant, you need the right solicitor, you need the right property team, you need the right surveyor. And not having the right team that specialize in property investment can set back investors tens of thousands of dollars in losses 'cause they don't know these little hacks.

Chris Smith: So it's correct. It's, it's, uh, as I said previously. If the ATO doesn't tell you the legislation is there, it's up to us to communicate to our good clients what's sitting there, what's available for us to claim, and let's all get ahead together. 

Big takeaway guys, is have the right accountant on your team.

[00:15:00]

Chris comes with a 26 years of experience and helps investors structure this up correctly. Chris, we didn't know  tax can be sexy. We've made it sexy today. Money sexy. Much as sexy as it can be though It's sexy. When we can help our clients put more money back in their pocket, our listeners be able to see how they can, you know, be better off by tens of thousands of dollars.

So thank you for your wisdom. Thank you for your knowledge and thank you for your time today. Really appreciate it. Well, thanks very much for 

Chris Smith: having me, Dave. It was, it was great. You're welcome. Thank you. Thanks Chris.