With EOFY just behind us, property investors preparing their tax returns must take smart steps to maximise claims and potential tax benefits by getting documents in the best possible order to lodge an accurate return.
To help make tax time less stressful, try these practical tips for managing EOFY and your mortgage.
Work with a trusted accountant
EOFY for property investors can be complex – but it can also be very rewarding.
By choosing a professional accountant who understands you and your investment needs, you can enjoy appropriate, accurate advice and be sure that you can make the most of the deductions you are entitled to as a property investor.
Do your research to work with an accountant who has proven experience in the field of property investment and the relevant taxation laws, in order to help maximise your deductions.
Claim your expenses
At tax time, life as a property investor comes with the opportunity to claim a long list of expenses. Some tax-deductible expenses can include:
- Advertising for tenants
- Body corporate fees
- Council rates
- Land tax
- Water charges
- Pest control
- Professional cleaning
- Garden maintenance
- Insurance (including public liability, contents and building)
- Property management fees
- Bank charges
- Property maintenance and repairs*
- Legal fees
*When it comes to being able to claim deductions related to property maintenance and repairs, it’s important to understand that, according to the Australian Taxation Office (ATO), some improvements to investment properties may be able to be claimed as a capital works deduction, or depreciation.
For first-time property investors, as well as those who have recently refinanced their property, there is potential to claim other deductions, such as mortgage broker fees, property valuation fees, loan establishment fees, and lenders’ mortgage insurance.
Paying your property loan interest in advance may also be of benefit, depending on your own circumstances. Check with your mortgage broker in Melbourne or lender to see what’s possible – some lenders offer this option on fixed rate loans. And with the new financial year already underway, paying next year’s interest early means that you can claim it as a deduction this financial year.
Property investors can claim on expenses but are also able to claim on the annual value decline of their property’s equipment, structure and fixtures. This is known as ‘depreciation’ and can meaningfully boost your return, with the potential to save many thousands of dollars each year. Other areas that can have depreciation claimed include washing machines, ovens, window furnishings and some furniture.
To claim depreciation, property investors must have a depreciation schedule, which is, essentially, a report detailing all available depreciation-related tax deductions for the investment property. Although an investor can create one themselves, utilising a professional quantity surveyor will ensure its thorough accuracy.
Investors should note that depreciation on an existing residential rental property cannot be claimed if they entered into a contract to purchase that property on or after 7.30pm (AEST) on May 9, 2017. Investors who transitioned their former place of residence into a residential rental property on, or after, July 1, 2017 cannot claim a deduction for depreciating assets that were already in the home, but can claim depreciation on items that have been purchased since.
To gain a full understanding of what can and can’t be claimed, talk to an experienced accountant.
Record-keeping for EOFY
Tax time does not have to be stressful and, with thoughtful organisation, it can be managed in a way that is efficient. Make sure you store all financial paperwork in one place and keep all documents that relate to your investment property. This could include bank statements, any receipts for property maintenance and repairs, as well as anything connected to rental income.
Legally, paperwork must be kept for five years, so for smarter storage and accessibility, create digital copies you can file,back-up, and refer to easily. Remember: if you do not have evidence showing proof of any investment property-related expenses, you may not be able to maximise your claimable deductions. For better record-keeping, keep all investment property expenses and loans completely separate from your personal finances. Ideally, money related to investment property loans and expenses should come out of a different bank account than your personal expenses.
Tax-management for EOFY and beyond
Dealing with EOFY is not just about finalising tax-related issues for the previous financial year – it’s also about exploring better ways to manage your tax for the new financial year ahead. By taking strategic steps to manage your property investment tax obligations, you can find sustainable ways to save time and money for years to come.
For more information about purchasing an investment property, or managing your existing mortgage more effectively, talk to our mortgage brokers at Lending Specialists.