8 Tips To Maximise Your Tax Return

It’s hard to believe, but we’re approaching that time of the year again – tax time!

As the end of the financial year draws closer, you’ll likely start thinking about that big fat tax refund and what you can do with it. But first you need to make sure you maximise your cheque.

To help property investors get their fair share of the tens of billions in tax refunds handed back each year to individuals and put themselves in good financial stead for next year, we’ve put together the following tips:

Maximise your deductions

Depreciation Quote ScheduleThe easiest way to maximise your tax return 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:

 

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

Up to 80 per cent of property investors are missing out on thousands of dollars in tax savings because they fail to take maximum advantage of depreciation.

Depreciation is a reduction in the value of an asset over time due to wear and tear, and for income-producing assets, can be claimed as a tax deduction.

There are two types of depreciation allowances for investment properties. The first is plant and equipment, which covers removable items such as dishwashers. The second is 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. (Deductions for 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 tax returns, and 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.

Prepay expenses

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.

 maximise tax returnConsider 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

Getting advice from a great accountant or tax specialist will pay off, saving you both time and stress, while also maximising tax return.

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. This will 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 Depreciation Calculatoralone 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 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.

Busting the 8 Myths of Depreciation Schedules

There are many myths floating around when it comes to tax depreciation. Especially regarding what property investors are entitled to claim.

Below are some of the most common myths I have heard during my time as a qualified Quantity Surveyor.

NOTE: Information below regarding plant and equipment items may only apply to properties purchased prior to May 9, 2017 – Read about the Budget changes here).

myths of depreciation Myth 1: The Commissioner’s effective life ruling must be used for all assets, no exceptions.

Truth: The Commissioner of Taxation’s ruling only applies to new depreciable assets.

For example;

In 2015, the commissioner wrote  in the ruling that the effective life for new internal window blinds is 10 years. He does not mention that the effective life for second hand internal window blinds is 10 years also. So, if you have purchased a 5-year-old building with 5-year-old internal window blinds, you are not able to depreciate the blinds using a 10-year effective life.

A quantity surveyors role is to maximise depreciation deductions for the client. In order to do this, they must assess the effective life of second hand assets. And not just assume all of the assets in the property are brand new assets.

Also, it is important to note that if an asset is not listed in the depreciation schedule, it does not mean you are not able to claim for that asset. If it is a depreciable asset, you are able to claim it!

If an asset is purchased after the completion of the report, or you did not provide the information to the quantity surveyor, your accountant is able to include the asset for you.

Depreciation Quote Schedule

Myth 2: If the assets in the property are destroyed I am able to claim the balance of the depreciation.

Truth: Some of this myth is partly true. The Division 43 capital works states that where a taxpayer’s capital works are destroyed, a deduction is permitted under the Undeducted Construction Expenditure rule.

However, if they receive an amount under a different insurance policy for the destruction of the assets, they are required by law to reduce the Undeducted Construction Expenditure by that amount.

Under Division 40, if a taxpayer ceases to own a depreciating asset (either sold or destroyed the item), or does not use a depreciating asset (no use for it any longer), a balancing adjustment will occur.

A balancing adjustment amount can be calculated by comparing the asset’s termination value (sale proceeds) and its adjustable value (written down value). If the termination value is greater, you include the excess in your assessable income. However, if the termination value is less, you deduct the difference.

myths of depreciation

Myth 3: Once the depreciable asset is found, you can claim depreciation on it.

Truth: Through past experiences, I have learnt that most investment home owners use their properties at some point during the year. This, however, creates incorrect figures in their tax depreciation schedule.

The purpose of a depreciation schedule is to inform a taxpayer on what they can include in their tax return. Without considering whether or not there has been private use of the property, or figuring out how to adjust the depreciation amounts to the correct sum, is at best misleading and at worse illegal.

Myth 4: All costs in acquiring a rental property should be able to be depreciated in one way or another.

Truth: This has mostly been covered by Myth 1 already. But this is the most common myth so I am going to explain it in more depth. Depreciation Calculator

I have found that QSs are continually finding any asset to attach any and all costs to in order to claim a deduction, without properly following the laws.

For example, an investment property owner’s fence is damaged and the owner spends money on the repairs. The QS sees the cost the owner has spent and includes that whole sum in their depreciation schedule, depreciating it over 40 years at 2.5%. This is wrong.

A repair should be claimed at 100% in the year in which it was incurred.

Myth 5: Once I have spent money on a asset or a capital work I am able to claim it.

Truth: Under Division 40, you are only able to start depreciating an asset once it has been “used or installed ready for use”. Not as soon as you have paid for the asset.

For capital works under Division 43, you can claim deductions only once construction has been completed.

myths of depreciation

Myth 6: If I am unable to find the depreciable asset in the Commissioner’s yearly ruling, I cannot depreciate it.

Truth: The intention for the Comissioner’s ruling is to estimate the effective lives of assets. Not to decide what is a depreciable asset.

A depreciable asset is defined as an asset with a limited effective life. Therefore they are expected to decline in value over time.

Myth 7: Your assets are always deducted at 2.5%.

Truth: The rate at which assets are deducted is almost always 2.5%. However, there is one time you can get 4%.

However, there are times when a 4% deduction is applicable.

For example, a 4% rate will apply on an income-producing use of a building regarding an industrial manner.

How is Property Depreciation Calculated?

Office, business tools with dollars and calculator on table

The Process

Before feeling intimidated by the following explanation, if you so choose, all you really need to know is that a quantity surveyor can inspect your property and prepare a depreciation schedule for you, without you having to understand how exactly depreciation is calculated.

If that is the case, all you’ll need to do is hand it over to your accountant at tax time. That’s all you need to know, if you wish.

What if I do my own taxes?

If you do your own tax return, you can easily include the figure straight from the quantity surveyor’s report yourself.

You don’t need to worry about complicated calculations. In practice, it’s as easy as a phone call to a quantity surveyor to ensure you get all of your allowable depreciation deductions. He or she will produce a one-off report you can use year after year. Another benefit to you, is that you can claim the cost of that report as a tax deduction as well.

The Calculation

Depreciation CalculatorMany investors, however, will want to understand the process for themselves. So, now for the nitty gritty. Here is an explanation of the laws behind depreciation. To give you some background, there are two parts of the Income Tax Assessment Act 1997 we are dealing with here:

  1. Division 43 (Capital Works Allowance); and
  2. Division 40 (Plant and Equipment)

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.

The capital works allowance (more commonly referred to as the building allowance) refers to the construction costs of the building itself, such as concrete and brickwork. Plant and equipment refers to items within the building like ovens, dishwashers, carpet and blinds, etc.

Each of these two categories incurs claims. The building allowance is calculated between 2.5% and 4% per year of original construction costs (depending on the date of construction). Plant and equipment has a number of categories in which items are claimed at different percentages over their effective life. I’ve used the Washington Brown depreciation calculator to demonstrate the following example of how much you can claim on a standard $400,000, high-rise, two-bedroom unit in Melbourne.

Example of Depreciation Calculator:

Files and graphs

Work out how much you save using our free property depreciation calculator or make it happen and get an obligation free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

8 Tips For Maximising Your Tax Return

Maximising Your Tax ReturnTo 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:

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

Up to 80 per cent of property investors are missing out on thousands of dollars in tax savings. Mostly because they fail to take maximum advantage of depreciation. Depreciation Quote Schedule

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.

Prepay expenses

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

Getting advice from a great accountant or tax specialist will pay off, saving you both time and stress, while also maximising your tax return. Depreciation Calculator

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.