To help property investors maximise their tax returns and get their fair share of the tens of billions in tax refunds handed back each year we’ve put together the following tips:
Maximising Your Tax Return:
The easiest way to maximise your tax refund is to maximise your deductions.
As a property investor, know all of the expenses you can claim as a deduction and make those payments before the end of the financial year. Claim for everything you’re entitled to, no matter how small it is. Every dollar will contribute to your investment’s return – and your wealth.
As a guide, landlords can usually claim the following as tax deductions:
- Interest on an investment loan
- Holding costs, including council/water rates and body corporate bills
- Tenancy costs, including property management fees and the cost of advertising for a tenant
- Insurance premiums, such as landlord insurance
- Legal costs for troublesome tenants
- Travelling costs for property inspections
- Repairs and maintenance caused by tenant wear and tear
Some tax deductions allowed for investment properties are often overlooked and some, such as the cost of renovations, are included when they shouldn’t be. To get it right, consult a professional.
Don’t forget about depreciation
Depreciation is a reduction in the value of an asset over time due to wear and tear. As income-producing assets can be claimed as a tax deduction.
There are two types of depreciation allowances for investment properties – plant and equipment, which covers removable items such as dishwashers, and capital works on the building, covering the property’s structure. If the property was built after July 1985 depreciation can be claimed on both elements.
(NOTE: Deductions for these plant and equipment items may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here).
Depreciation is one of the key ways to maximise your tax refund. It can be done without spending a cent because it’s a non-cash deduction.
Get a professional quantity surveyor to prepare a depreciation schedule for you to maximise your deductions, with the fee also being tax deductible.
If you expect to have a lower income next year then consider prepaying expenses on your investment property, such as interest or other holding costs – for up to a year in advance – before June 30. This will give you greater deductions to reduce the tax payable on your higher income this year.
Consider delaying income
Minimise this year’s tax liability by delaying income until after July 1. For property investors this will largely be applicable to property you’re selling – if you know you’ll be up for capital gains tax, consider delaying the sale until next year.
Seek the help of professionals
The fee will be tax deductible and if they do a good job you’ll get your money’s worth by getting the best possible refund.
Often a good accountant will find deductions you never even knew existed, and they’ll also make sure everything you claim is legal, so you’ll avoid a visit from the taxman down the track.
Keep good records
Do you always find yourself scrambling to sort through the piles of papers at the end of the financial year, desperately trying to find receipts for your tax deductions, let alone trying to make sense of them?
While it can be tedious, you’ll find it’s much easier to be organised throughout the year. File away your tax documents so you know where they are come June 30.
This will enable you to maximise your deductions. As you’ll have each and every receipt and will be able to claim every single penny you’re entitled to. You’ll also be more accurate in what you claim and will have good records to substantiate your claims.
Do everything by the book
Investment properties can sometimes be targeted by the ATO. So make sure whatever you do to maximise your tax return is legal.
An accountant can make sure you claim only the deductions you’re entitled to claim, in the right way.
Remember, if you get audited it could cost you significant sums of money, so it’s not worth fudging the figures.