Tax time is rolling around yet again, but don’t leave it until after June 30 to get you documents in order. Be a smart investor and get on top of your paperwork now! Work out where you are currently sitting financially and take on board the following 12 tax tips for Property Investors to help you get the most out of your tax returns.
1. Get Good Advice – Finding the the best team to help you make the most out of your tax returns is essential! Find a good accountant that knows about investing in property and knows the best situation for your circumstances. Make sure you understand what they are saying and why they are recommending a particular strategy, as while it good to get the best advice you can, nothing compares with knowing your own circumstances and what your end goal is.
2. Have a Depreciation Schedule Done – Surprisingly there are are a large amount of investors that have not engaged the services of a Quantity Surveyor to have a depreciation schedule drawn up. I, myself have been guilty of not having a depreciation schedule when I first started investing. If you have an investment property and don’t have a depreciation schedule then get on to it quick smart before the end of financial year. The cost of the reports are also tax deductible (tax amendments can be submitted if you have not had a Depreciation Schedule done and want to claim for past years. Speak to your accountant).
3. Know What You Can Claim – Knowing what you can and can’t claim is essential to get maximum benefits on your returns. To find out what you can claim, ask your accountant or visit the ATO website for more details. A detailed report from the ATO about rental properties can be downloaded from our Resource Section.
5. Keep Separate Records – Keeping your investment loans separate from your personal loans is an absolute must and will make your life and your accountants life a whole lot easier. Separate loans will make it so much easier to calculate the interest you can claim. If you have a Line of Credit or similar and wish to only use a portion of it to invest in property, speak to your bank or broker and arrange to have the loan divided.
6. Scan All Receipts – We’ve all been there. We file our receipts away until the end of the year and then drag them out to compile our tax only to find most of the receipts have faded and you are left with a pile of blank squares of paper. Yikes! Make time at least once a month (or even once a fortnight) to scan your receipts and keep electronic copies. That way you will be all set once tax time rolls around.
7. Claim Travel – Just like depreciation schedules, travel expenses are often overlooked when it comes to claiming. All travel costs to inspect your investment property can be claimed. Any travel costs to your accountant and/or advisor can also be claimed. Any car travel under 5,000 km that is claimed does not require records, but personally I like to keep track by noting any travel in my diary/planner. If you anticipate any travel to exceed 5,000 km then keep a log right from the start.
8. Prepay Expenses – This is a handy one if you have a firm understanding of what your income is for the current financial year and what you estimate it to be in the next financial year. It can be beneficial to prepay any property expenses in advance to take advantage of the tax benefits in this financial year and get back those expenses almost immediately. Expenses such as rates, body corporate fees, insurance and possibly even interest (double check this for your circumstances as it may only apply if you are on a fixed interest rate) can be prepaid. You should also consider if it’s worthwhile to do repairs on properties before July 1 to claim the deduction now.
9. What About Structures – Structures are great for protecting your assets and distributing your earnings, losses etc. But they have to be right for your circumstances. This is where I direct you straight back to tip No. 1 – Get Good Advice. Getting the right advice will not only help you understand what structures you need (and trust me, these things can get quite complicated), but it also helps to make sure any trusts etc are set up correctly.
10. PAYG Variation – If you get a tax refund every year and your confident that this year or next year is not going to be different, then why wait until you’ve submitted your return to get your refund? Why not just pay less tax during the year? This is easy to do, you simply have to submit a PAYG Withholding Variation Application form to the ATO. Great option for those who are struggling with cash flow. Again, Know your circumstances and get good advice. More information can be found here.
11. Consider Capital Gains – Take in to account the Capital Gains Tax you may be up for on a property you are considering selling. If you have held the property for less than 12 months you will not be eligible for the 50% Capital Gains discount (and this is calculated from the contract date and NOT the settlement date) If you have any capital losses and sell a property in the same year for profit those losses can offset the capital gains and reduce the amount you have to pay.
12. Consider Capital Losses – Keep in mind that if you have made a loss in property, this loss can be offset against any gains (or PAYG income if the property is in your name) or carried forward to help reduce tax in the future. Losses can be carried forward indefinitely, but they cannot be carried back.
Work out what strategies are best for your own circumstances, but don’t leave it too late.
Head over to the ATO website to find out more information on tax benefits for property investors.