As the year edges closer to June 30, it’s time to start thinking about tax. With a minefield of extra boxes to tick and deductions to claim, getting your investment property EOFY-ready is critical.
There are lots of moving pieces to juggle when lodging your tax, so start making proactive preparations as early as possible. If you get it right, you can leverage the largest possible return and maximise your savings without breaking a sweat.
Follow this simple EOFY property tax checklist to sail through tax time and get the return you deserve.
Get your investment property EOFY records ready
Record keeping is one of the most important parts of preparing your investment property for EOFY. You need to keep clear and thorough records of every expense related to your property. If you know all of your expenses, then identifying all the claims you can make in your tax return is a much simpler task.
Be aware of what you can claim as an expense:
- Water and council rates
- Interest on funds that relate to your investment property only
- Ongoing expenses, such as maintenance fees
- Insurance, such as landlord and building insurance
- Capital works that increase the value of your investment property
- Property management fees or commissions paid to agents
- Depreciation, ideally based on a tax depreciation schedule
Expenses can pile up throughout the year, so don’t wait until the last minute to pull them together. Instead, avoid the headache and keep an easily accessible and clearly labelled file of every receipt and document related to your investment property. If you’re a client of Thrive Property NT, you will receive an investment property EOFY statement which outlines all expenses incurred over the financial year.
If you’re audited by the Australian Taxation Office (ATO), your records will be required as evidence to back all of the claims you’ve made. Keeping your records organised from the get-go will make the audit process much more manageable. If you can’t provide evidence to back your claims, you may be penalised.
Engage a tax accountant
Preparing your investment property for EOFY is challenging for even the most seasoned investors. It can take a lot of time and stress if you’re doing it all yourself. To save yourself a significant amount of hassle, consider engaging an experienced tax accountant to do the legwork for you.
A tax accountant will ensure your tax is legally compliant and optimised to maximise your savings. But remember, not all tax accountants are created equal. It’s important to do your research to determine which one is right for you. Be sure to choose one with an in-depth knowledge of investment property tax and a solid reputation.
Get a tax depreciation schedule
Whether you’re lodging your investment property tax return through an accountant or doing it yourself, you’ll want to get a rental property depreciation schedule. This report breaks down the tax deductions you can claim on the annual depreciation of your investment property.
A tax depreciation schedule is one of the most valuable deductions you can make on your investment property at EOFY. Despite this, many real estate investors forget to claim the depreciation of their investment property.
Putting together a tax depreciation schedule can be complicated. Engaging a qualified quantity surveyor to estimate the decline in value of your assets and create a schedule is worth your while. This will mean that nothing gets missed when claiming the depreciation of fixed items, such as carpets and blinds, in your property.
Savvy real estate investors will make any expensive and depreciable purchases for their investment property at the beginning of the financial year. That way, they can maximise the return on the depreciation of these items in their investment property at EOFY.
Claim the right deductions
Preparing your investment property EOFY is ultimately a numbers game. It all comes down to knowing what deductions you can claim. Here are a few big ones to keep in mind.
Negative gearing losses: A negatively geared investment property is one where the expenses, including interest on the loan, exceed the income generated from it. The losses this creates are tax deductible, but you can only claim this across a period of time in which the property was rented.
Home loan and interest fees: Home loan fees, such as offset account fees, and your mortgage interest can all be claimed. However, you won’t be able to claim this if you’ve cashed out some of your equity.
Property maintenance and repairs: General maintenance and repairs can be claimed at tax time. Be careful when making these claims, though, as improvements and renovations do not fall into this category.
Borrowing expenses: If you’ve taken out a loan for (or have even refinanced) an investment property, you can claim the associated borrowing expenses. This includes lenders mortgage insurance (LMI), stamp duty and some fees.
Capital Gains Tax (CGT) discount: You can apply for a 50% capital gains tax discount if you’ve sold an investment property in the last financial year. Keep in mind, you’ll need to have owned the property for over a year to qualify for this discount.
With EOFY once again on the horizon, now is a great time to start making preparations. Though tax time may never be fun, with the right approach, preparing your investment property EOFY documentation can easily be less stressful.
Are you still feeling unsure heading into June? It helps to have a great property manager like Thrive Property NT on your side. To connect with a trusted, local property manager, simply click here.
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