Read on for the biggest must-knows for property investors this tax season, helping you stay out of trouble with the ATO and minimising your tax bill while maximising your long-term savings.
Must-know #1 Records you should keep
From 1 July until 31 October, you will need to lodge your tax return for the previous income year. If you’re using a registered tax agent, you may be able to lodge later than 31 October. Whether you prepare your tax return yourself or use a tax agent, you need to have on record up-to-date correspondence, income and bills related to your investment property over the period you own it. This includes rental income, deductible expenses and documents relating to ownership of the property, including all purchasing and selling costs.
It is important to note that documents pertaining to rental income and deductibles need to be kept for five years from 31 October or five years from when the tax return is lodged, if after 31 October. Any documents relating to property ownership need to be kept for five years from the date you sell your investment.
If you have a property manager, they will likely provide you with an EOFY summary. If you misplace a receipt or invoice, the ATO allows you to substantiate your claims with a bank statement. Having these documents handy, whether in a physical or digital file, throughout the year means it will be easier to make accurate calculations come tax time.
Must-know #2 Not all accountants are created equal
According to the ATO, one of the common mistakes that investors make is choosing an accountant with limited property experience, as this experience is often invaluable come tax time. What deductions property investors are allowed are subject to change, and if you don’t have an accountant who understands property, you could be in for a shock. For instance, a landlord is no longer able to claim travel deductions for inspecting, maintaining and collecting rent.
Before settling on an accountant, take the time to find out what their experience or level of expertise is. Ask different accountants questions about property investing and gauge if their responses are thorough enough.
Must-know #3 To claim or not to claim
If you are DIY-ing your tax return, having a good understanding of the ins and outs of the tax rules is important. Even if you are working with an accountant, having this understanding will put you in a good position to make smarter decisions that could have a positive impact on your tax circumstances.
For instance, you might want to bring forward expenditure to before 30 June, if you’re planning repairs for your property. Before doing this, however, determine whether the job is deductible as a maintenance or repair, or if it is considered a renovation or of a capital nature. To help you understand the difference, the ATO publishes a guide on how rental property owners need to treat rental income and expenses at ato.gov.au.
As a rule of thumb, things you may be able to claim for immediate tax deductions include rates and taxes, including council and water rates and land tax, repairs and maintenance. Some tax deductions that may be claimed over several years include capital works or building costs and borrowing costs.
There are many deductible items which slip the mind of the savviest of property investors. For instance, around 80% of property investors don’t claim the depreciation of their rental at tax time1, despite it being one of the most valuable deductions property owners can claim.
Estimating declines in the value of assets is complex, so it might be worthwhile to engage a qualified quantity surveyor to create a depreciation schedule. This allows you to claim the depreciation of fixed items within your property including carpets, blinds and fixed appliances, reducing your taxable income.
Again, planning ahead is crucial. If you know you have expensive, depreciable purchases around the corner, the best time to buy is always early in the financial year to ensure you are maximising how much you can claim.
Despite being one of the busiest times of the year, EOFY also offers a great opportunity to review how your investment property has performed throughout the year with a property manager, if you have one. It is also a good time to check in with your mortgage broker to ensure your existing loan is still servicing your needs and discuss any future plans to expand your investment portfolio.