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.

Tax Time: What You Can Claim

Tax time is creeping up on us! So I thought I’d provide a simple list of some things that you can claim on. And that will help you save some money.

If you’ve been reading this blog, you’d know by now that some things cannot be claimed as an immediate deduction. However, there are some that can be.

So make sure you don’t miss out on claiming them!

claim tax

So, what are these expenses that can be written off immediately?

Well here’s a list that will save you immediately. Make sure your accountant is able to claim these for you!

  1. Acquisition and Disposal Costs incurred to gain a tenant.
  2. Charges and fees such as body corporate charges and fees, council rates, lease document expenses, legal expenses, mortgage discharge expenses, tax related expenses, insurance, and interest on loans.
  3. Fees related to hired services such as property agents’ fees and commissions, quantity surveyor’s fees, pest control, cleaning, gardening and lawn mowing, and secretarial and bookkeeping fees.
  4. Expenses that cover utility bills such as water charges, electricity and gas, and telephone calls.
  5. Installation and activation charges for items in the property such as in-house audio and video service charges and servicing costs.
  6. Other miscellaneous expenses such as travel and car expenses, and stationery and postage.

Remember, these expenses can only be claimed if they were directly incurred by you and not the tenant. Depreciation Calculator

So if you are renting out your property, now is the best time to go over your receipts and check which expenses fall under the list and before you know it, you’ll have more deductions than you bargained for!

If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.

Beat the End of Financial Year Rush

end of financial year rush

Simple Tricks For Beating The End of Financial Year Rush

Every one exchanges and settles a property on different days throughout the year. However, the end of the financial year only occurs once. As does the end of year rush!

Your report should calculate exactly how much money you can claim for building allowance depreciation, based upon the number of days you have owned the property in that financial year.

For instance, if you settled on June 30, you should only be claiming 1 / 365 of any value attached to, say, the oven or the Depreciation Calculatorcarpet. (See this post on small items under $300 and low-value pooling for exceptions to this rule). Some reports from other companies do not do this calculation for you. If this is the case, this will cost you money in terms of additional accounting fees.

One important point I’d like to take note of regarding the timing of getting your depreciation report, is that you should get it sooner rather than later. Don’t wait for the end of financial year deadline when everyone else is scrambling to get a report.

If you have settled on a property late in the year (say around November or December), order a depreciation report right away so you can avoid the June rush. Often, offices pile up with work around the end of financial year. Due to this there is always the possibility you won’t get your report on time if you leave it until the very last minute. In some circumstances, you are also able to request monthly deductions, rather than wait until the end of the financial year. Having the depreciation numbers included in your tax variation will assist you.

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

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

How to Claim Low-Value Pooling

Immediately Write Off $300 and Low-Value Pooling

(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 deductions are pro-rated depending on when you take ownership of a property. However, like with everything, there are exceptions to the rule.

For example:

claim low value pooling
A Sydney client of ours settled on a one-bedroom Chatswood unit on June 25th last year. The property was built in 1999 and the purchase price was $450,000. Yet, their total tax deduction, which was for five days only, was more than $5,000.

“What’s the catch?” I hear you ask. Well, there isn’t one! The ability to make such a significant deduction for just a short period of time is due to the immediate write-off and low-pooling of items that are classified as plant and equipment.

The costs of ‘small items’ (valued at $300 or below) and ‘low-pooled items’ (totalling no more than $1,000) should not be pro-rated, instead they can be written off immediately. You can maximise these items whether the property has been owned for 1 day or 365 days. And the age of the property is not relevant to claiming small items or low-value pooled items. Plant and equipment in properties of any age are eligible for depreciation allowances.

There is a saying that goes, “a dollar today is worth more than a dollar tomorrow”, so deduct these items as quickly as possible.Depreciation Quote Schedule

What if you are a joint owner of a property?

For example:

Say an electric motor to the garage door cost the owners of an apartment block $2,000. If there are 50 units in the block, your portion is $40. You
can claim that $40 outright as your portion is under $300. Provided your portion for any joint area is under $300, you can still write it off in your taxes.

Items that depreciation faster:

Another tip is to buy items that depreciate faster. Items costing between $300 and $1,000 fall into the low-pool category and attract a higher depreciation rate. A $1,200 television attracts a 20% deduction while a $950 TV deducts at 37.5% per annum.

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

6 Reasons Why Negative Gearing Stinks

Dear Fellow Investors,

negative gearing

Cuts to Negative Gearing Stink

I get it. I get what Bill Shorten and the Labor Party are trying to achieve by cutting negative gearing…but it stinks for 6 reasons.

First, for those of you who might not know…Labor proposes to:

  1. Eliminate negative gearing to all residential investment properties other than new housing from the 1st of July 2017.
  2. Stop investors from claiming losses on secondhand properties against their wage income after that date.
  3. All investment properties purchased prior to this date will be “grandfathered” (meaning any current tax arrangement with your investment property will remain).
  4. Reduce the capital gains discount on all investment properties from 50% to 25%.

Stinky Reason #1 – How much will the budget be improved?

The latest data from the ATO shows that in the year 2012/13 property investors “negatively geared” or reduced their taxable income by approx $5.5 Bn. That’s $5.5Bn that the Government could have taxed (not necessarily collected).

Firstly, this data, the most recent available, was based upon a period when the RBA cash rate was higher than it is now.

Interest rates on borrowing have dropped since that time – meaning the losses investors can now claim will be reduced.

Back then, the outstanding rate of interest was close to 5.5%. It’s now close to 4.5%. That’s a drop of 18.2%.

I can currently get a 5-year fixed rate of 4.59% from NAB and there are many others

If you reduce the amount investors have claimed in interest by 18% – there goes those negative gearing losses even allowing for CPI increases of other deductibles.

In order to get Labor’s forecast of $32Bn in savings over 10 years, Treasury must have predicted some significant increase in interest rates from years 6-10 right?

But let’s face it….Treasury can get it wrong – remember its forecast for iron ore prices? It was totally optimistic.

Stinky Reason #2 – Negatively Gearing new property only is risky business…

“Roll Up Roll Up”…I can hear the spruiker cry…

By allowing only new properties to be negatively geared….you are creating a “green light” situation for every spruiker to come out of hiding and promote new property to unsuspecting mum and dad investors.

Depreciation Calculator

Selling new property is far less regulated and commissions are rife. Time and time again I get offers to sell property to my database and receive a 10% commission on the purchase price. But I don’t.

Whilst I’d love the 10% my father lost all his super from the dodgy side of the property market and the last thing I’d want is for someone else to go through that experience.

Tip – Have you noticed spuikers generally only sell new property?

That said, not all people selling new stock are bad – currently most are good…but this type of policy might attract less scrupulous spruikers after a quick buck or two.

Stinky Reason #3 – The Reverse effect

I get it – Labor’s policy aims to increase home affordability particularly for first home buyers.

Yes. Australia is expensive on the world stage – BUT could stopping negative gearing actually inflate prices?

How? Well the first thing I thought when the policy was released was “no point selling any properties I currently negatively gear – I’m hanging on!”

According to those ABS stats I previously mentioned – there’s close to 3 Million properties that might not be sold if everyone thinks like me!

Now, I’m no Warren Buffet but I do remember one thing from economics…price is a factor of supply and demand and if you take away the supply….prices tend to head north.

Stinky Reason #4 – The elephant in the room

This stinky reason is a surprising one, and in all my research I haven’t seen any mention of it.

Whilst the Government may, in the long term, claw back some revenue if this policy is implemented, if property transactions decline, the States are going to be significantly impacted by way of stamp duty collection.

If investors hold onto stock…the building industry won’t be able to magically increase supply to make up the difference.

And if you have far less transactions, you have far less real estate agents, conveyancers, buyers agents, brokers etc paying income tax.

Stinky Reason #5 – Slippery Slope

Labor has also proposes to cut negative gearing on new share investments. This leads to a whole bunch of questions such as:

  1. By shares are we talking listed only or unlisted?
  2. How are super funds treated? Family trusts?

And back to property…

  1. What if I buy a commercial or industrial building? If bought in my own name it appears I can still negatively gear it. However, if that same building is part of a listed trust, then I guess I can’t. Please explain??
  2. Is “property” treated as land + building and plant and equipment separated? Because that’s how the CGT calculation is calculated.

I could go on…

Stinky Reason #6 – The Renovators

“New property” is not all about starting from scratch.

Depreciation Quote Schedule

Don’t underestimate the amount of people who like buying and upgrading property. This has a multiplier effect in that money is being injected back into the economy through the employment of trades and the purchasing of goods and services etc.

Final Point:

Now I’m not going buy into the debate over whether negative gearing is for the “rich” or for the working class. I would’ve thought it was pretty obvious that those with higher incomes benefit more from negative gearing.

And I don’t buy the argument, from the Real Estate Institute of NSW, that rents will suddenly go up because negative gearing is taken away. Rent is a factor of supply and demand – not what it costs an individual to hold a property.

What I worry about is the risk/reward ratio. I think at this point of the economic cycle (China’s downturn, mining slump, drop in commodity prices and a property boom in most major capital cities around the world)… this policy is potentially playing with fire for very little reward.

I agree there are certain elements that need to be fixed to make the system fairer and here’s my thoughts on that.

Regards

Tyron Hyde
CEO AAIQS

PS – If you think I’m writing this article as a staunch Liberal Voter…you are wrong. I was brought up to vote Labor. In fact, my father ran for the seat of Lowe in 1975 against Billy McMahon! I’m currently politically agnostic (my father would be turning in his grave) – but times have changed!

We Help Property Investors Achieve Their Dreams

investors achieve their dreams

Helping property investors achieve their dreams

We help property investors achieve their dreams

Over the last couple of years I’ve become a bit of a seminar “junkie”.

It used to always be property seminars but the last couple of years it been more business seminars.

After 20 years in business, every now and again I need a kick up the bum! Depreciation Quote Schedule

I took it one step further recently and flew to LA to hook up with 300 other like-minded business owners.

What I didn’t expect to find was how motivated and focused the Americans that I met were.

I was in one seminar and the presenter said “turn to the person next to you and tell them what your business does”

So I started, turned to the lady next me and said “We work out what things cost to build.”

She looked at me and says “But what do you really do?”

I replied, a little bit scared of her, “I save people money?”

She looked at me and said in her sweet Californian accent “But what drives you to do that?”

I thought about it for a while and replied “I help property investors achieve their dreams”

That is going to be the new Washington Brown mantra – because that’s what we do.

Free Report

How Does Investment Property Depreciation Really Work?

how does investment property depreciation really work

What is Property Depreciation?

Ever wondered how does investment property depreciation really work?

Just like you can claim the wear and tear on your car, you can claim depreciation for your property investment. It has to be an income producing property.

Bare in mind, depreciation law varies from country to country in relation to depreciation.

We’re pretty lucky here in this country, in that we can claim depreciation on an investment property. Actually, I think we really have the most fairest depreciation laws in this  country compared to any other country because some countries base the depreciation on the actual purchase price, I think it’s kind of fair that we base our depreciation laws here Depreciation Quote Scheduleon the construction cost. And that makes sense to me.

But in summary, what you claim in terms of depreciation reduces your taxable income.

So for instance, if you earn $60,000 per annum and if you get a report from Washington Brown that says you can claim $10,000 in depreciation on that property, you should only be paying tax on $50,000 not the $60,000 that you’re earning. Pretty simple.

Now, there are only two things you need to know about depreciation. The first thing is the Division 43 deduction. That’s what is called the Capital Works Allowance and how I define it is the structure of the building, the brickwork, and the concrete.

In short, the stuff that’s going to last longer. And if you buy a residential property, in order for you to claim that, it has to be built after 1985. So if you buy a property that’s built in 1970, you cannot claim any building allowance on the structure.

If you buy property that’s built in the year 2000 when it cost a hundred thousand dollars to build the structure, you’ll get to claim 2.5% per annum over 40 years. If you bought it today and it was built in 2000, you’ll get to claim it over the next 26 years at 2.5%. That makes sense. You’ll get more.

Depreciation CalculatorThe next thing, the next common part we need to understand is what’s called the Plant and Equipment or Division 40. So that’s the stuff that wears out quicker. The ATO has defined it in two categories: stuff that wears quicker and stuff that’s going to last for a long time. So bricks, concrete, roof, and windows are going to last over 40 years. The ATO has determined a list that’s going to last for a lesser period which includes things like ovens, lifts, blinds, and carpets.

(UPDATE: Deductions for plant and equipment items may only apply to commercial properties, brand new properties, if you bought the property prior to May 9, 2017, or some other exceptions – Read about the Budget changes here).

If you get more wear and tear, you actually have to replace it sooner. So the ATO says if you buy a carpet for $2,000, you can claim that over a 10-year period and you can claim it per annum. On the other hand, for bricks and concrete, which they say is going to last 40 years, you get to claim that over 40 years. Pretty simple. So the more of this stuff you have in your property, the higher the rate of depreciation.

So for instance, the high-rise apartment where you have gyms, lifts and other common property items… You get a massive depreciation.

However, you might get a massive sinking fund to pay for as well.

Are You a Complete and Utter Property Flip?

Flipping property tax consequences

Are you a property flip?

When flipping property – what are the tax consequences?

From my experience there are two types of property owners who “flip” stock in the housing market. Depreciation Calculator

Firstly there are the ones who buy off the plan and try to on-sell (flip) the property to someone else prior to the settlement date.

The second type are renovation “flippers” – they try and buy an old house or unit and immediately renovate the property to flip to the next buyer to make a profit without the intention of ever holding it.

If the “flipper” is successful – the good news is they may make a capital gain. The bad news is – they won’t be able to claim any depreciation along the way.

The simple reason for this is that neither flipper has ever had the property available for rent. The flipper who bought the property off the plan – doesn’t even ever technically own it – due to the fact you own a property when you settle on a property.

In both cases if the flipping doesn’t work and they end up owning the property then getting a depreciation may become a viable option if the property becomes available for rent.

Once the property becomes available for rent – the owner of the property can immediately start claiming depreciation.

If you do hold a property that has been renovated – you can claim the costs of those renovations as a tax depreciation deduction. Depreciation Quote Schedule

If you need a depreciation schedule quote – click on the link.

A Quantity Surveyor will split the costs of those renovation into two categories:

  1. The Plant & Equipment – things like ovens, dishwashers, blinds etc. These items tend to wear and tear quicker and according to the ATO can be claimed at a faster rate in comparison to;
  2. The Capital Works Allowance – the bricks, concrete & roof etc. These items tend to last longer and have to be claimed over a 40 year period.

(UPDATE: Deductions for plant and equipment items may only apply to commercial properties, brand new properties, if you bought the property prior to May 9, 2017, or some other exceptions – Read about the Budget changes here).

It’s worth noting here – that if you have renovated a property that was built after 1987 (not that uncommon) – then you may be able to depreciate not only the new work BUT the existing structure as well!

If you need a depreciation schedule – get a depreciation quote here – or use our FREE depreciation calculator

That’s Flipping property tax consequences – all explained.

Keeping Records for Tax Purposes

Keeping records for tax purposes

Keeping records for tax purposes

We all know that when it comes to maximising your tax deductions, keeping records is very important. Without them, you leave yourself exposed and vulnerable in the event of an audit by the Australian Taxation Office (ATO). Depreciation Quote Schedule

The ATO relies on individuals to be responsible for assessing which items can be declared and claimed when it comes to calculating their own taxable income. However, it is crucial that one is able to provide evidence and proof of how these figures were compiled.

When it comes to claiming deductions and maximising the depreciation benefits associated with your investment property, it is necessary to supply a record of each individual expense. In accordance with ATO requirements, all records relating to rental property expenses must be easily legible and must contain the following information: name of supplier, amount of the expense, nature of the goods or services, date when the expense was incurred, and the date of the document.

Depreciation Calculator This is particularly relevant when renovations are being carried out. There may be instances where a document does not indicate the date of payment. In this case, you may use other supporting but independent evidence, like a bank statement which shows the date when the expense was incurred.

Ultimately, keeping accurate and complete records means that your tax submission will stand up to scrutiny from the ATO and ensures that you achieve the best possible financial outcome. In the case where records are not able to be provided – for legitimate reasons – an estimate by a Quantity Surveyor will be accepted by the ATO.

If you haven’t got the construction and need a quote for a depreciation schedule – click here or use our free online depreciation calculator to estimate your tax deductions today!