Property Investor – EOFY preparation and tips

With the end of financial year fast approaching we have provided some tips and considerations on property investor tax deductions and ways to maximise your tax refund and financial position. These tips are of a general nature and you should seek professional advice from an accountant to apply it to your specific circumstance.

Let’s get started!

Don’t keep your receipts in a shoe box – get your paperwork organised!

An investment property can mean loads of paperwork – loan statements, utilities, insurance, lease agreements – particularly if you have multiple properties.

Having well organised records will mean that claims are not missed, you can access documents with ease and you will have all the necessary invoices and receipts for when you meet your accountant.

If your accountant provides you with a checklist, complete it, otherwise build your own to make sure nothing is missed. Organise your information into financial years, then by property and then further break it down into rental income, utilities, insurance, loan statements, repairs and maintenance, tenant agreements and other correspondence…

Not only will you be well organised – you will get a feel for how your property is performing!

Record keeping

• Rental income and deductible expenses need to be kept for five years from 31 October or five years from when the tax return is lodged after 31 October.
• Documents relating to ownership of the property including all purchasing and selling costs, need to be kept for five years from the date you sell your investment.

Maximise Your Tax Refund

Tax deductions are a crucial part of cash flow management with property investment. The simplest way to maximise your tax refund is to understand what is deductible and what is not deductible – and importantly – ensure you keep a clear and concise record of these expenses.

Examples of common immediate deductions

• Advertising for tenants
• Accountancy costs
• Body corporate fees and charges
• Council rates
• Water charges
• Land tax
• Cleaning
• Gardening and lawn mowing
• Pest control
• Insurance (building, contents, public liability)
• Interest expenses – Remember, you can claim a deduction for interest payments only, not principal payments
• Property agent’s management fees
• Repairs and maintenance
• Travel undertaken to inspect the property, to collect the rent or for maintenance.

Examples of common depreciation expenses

• Furniture
• Carpets
• Curtains.

Examples of common capital works deductions

• A building or extension, such as a new room, garage, patio or pergola
• Alterations – such as removing or adding an internal wall
• Structural improvements – such as adding a gazebo, carport, sealed driveway or fence.

Generally speaking, you can claim an immediate deduction for repairs and maintenance as long as your property is being rented out. With improvements, you can either claim a capital works deduction or depreciation, depending on the type of improvement.

A repair is usually partial and restores something to its original state, eg. repairing part of a fence by replacing two palings.
Maintenance is work that prevents deterioration or fixes current deterioration eg. painting your property or oiling the garage door.
An improvement makes something better than it was originally or provides something in a new and more valuable or desirable form. They generally improve the property’s income production or expected life. For example, if you replace a crumbling timber carport with a brick lock-up garage, you are going beyond simply repairing the carport, you are replacing it with an improved feature.

Everything you could possibly need to know about deductions and depreciation can be found in the Residential Rental Properties section of the ATO website.

First time investor tip!

If you have purchased your first investment property speak to your accountant to make sure you get your deductions right the first time. Take along to the meeting;

• Purchase settlement statement
• The loan offer document or loan disbursement schedule listing the fees you were charged to set up your loans
• A copy of the depreciation schedule. If you do not have a depreciation schedule, ask your accountant who they recommend.

Other do’s and don’ts

• You can’t claim interest relating to funds used for private purposes
• Conveyancing expenses that you incur during the purchase and selling process are usually not deductible. Instead, these costs make up part of the cost base for capital gains tax purposes.
• Travel expenses: You can’t claim travel costs for visiting a property, when it’s not the main purpose of the trip.
• If you have an investment property but also use it for personal use (e.g. a holiday home or have friends/family living in the property for free), you are not able to claim expenses during that period.

Speak to your accountant about whether you should apply for a PAYG Withholding Variation

A PAYG Withholding Variation allows you to access the tax benefits of an investment property every week. this can asssit with managing your cash flow throughout the year. A variation estimates your tax refund for the upcoming financial year based on your income from employment and rental property income and deductions. You effectively receive your tax refund throughout the year in your pay, rather than waiting for your tax refund in July-October.

Keep your investment borrowings separate from funds used for other purposes

Ensure your loans are structured as you have a separate loan split for your investment property. If some of the funds are obtained from a loan on your owner-occupied home, make sure it is separated into a separate split with its own bank statements – so that when you are claiming interest it is clear that it relates exclusively to the investment property.

Check your tax return

Take the time to read through and check your tax return before signing it.

What if I’ve lost my receipts?

If you paid with a credit card or EFTPOS, the ATO will accept bank statements as proof of purchase.

Make sure you still remember your work-related deductions!

Don’t forget to talk to your accountant about work related deductions. For example, if you work at home after hours, chances are there are claims you could be making for home office usage, computer depreciation or the internet…

Find a good accountant!

Take the time to find an accountant who is experienced in property – particularly around tax time. They will be up to date with the laws surrounding property and will give you insight into maximising what you can and can’t claim.

And next year, you can claim a deduction for the accounting costs too!

Source: Australian Taxation Office – Residential Rental Properties 

Anthony Landahl | Equilibria Finance

This is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article that you need to understand to ensure your personal circumstances are taken into consideration.