Investors owning a residential rental property are not entitled to claim an input tax credit for the GST included in rental property expenses paid.
This strategy enables an employee to salary package certain rental property expenses and effectively avoid paying the GST on the expenses.
An example of how this works in practice:
Firstly the employee pays for say $5,500 of rental property expenses that include GST, expenses such as management fees, repairs and maintenance, new furniture, etc.
The employee then has their employer reimburse them for the $5,500 rental property expenses. The employer claims back the $500 input tax credits on the GST so only reduces the employees gross salary by $5,000. This results in no additional cost to the employer but the employee has had an initial $500 tax saving.
In addition, where the employer has reimbursed the cost of acquiring rental property assets that cost less than $300 each, the employee may ‘double dip’ by claiming an outright deduction for the GST-inclusive cost of the asset as well.
For example, if an employee paid $300 for a new chair for their rental property, the employee could have their employer reimburse them the $300 cost and reduce their gross wage by $273. The employee saves $27 GST, but will also receive a $300 tax deduction. At the 47% marginal tax rate this would save $141 in tax.