Last week we celebrated the shortest day of the year…and arguably one of the coldest here in Canberra! Is Hell finally freezing over by the way? A week later, and lo and behold, we’re on the eve of a new financial year yet again.
While we won’t all wake up tomorrow morning with a hangover and regrets about last night’s antics, June 30 is an annual milestone that arguably holds comparable significance to New Year’s Eve for property investors.
It represents new beginnings and for those of us who like to plan ahead and revise our investment strategy on a regular basis, the opportunity to evaluate how successfully our portfolio has evolved over the last twelve months and how we might improve our gains and cashflow over the next twelve months.
And speaking of cashflow…I say segueing into the crux of this article…now is the perfect time to ensure you maximise that all important property investment income. Yes folks, it’s tax time and you know what that means?
We all start to ponder the precarious balance between contributing our ‘fair share’ to the public coffers, while somehow managing to hang onto as much income as possible to sustain and grow our portfolios.
So here are eight timely tax tips to help you out. And may the property investment Gods smile on you in 2015/16!
- Keep accurate paper trails and documentation.
Industry insiders have warned that claims made by property investors will get a little extra attention from the ATO this year. So as the taxman ups the audit ante on those of us with real estate assets yet again, now more than ever you need to be able to substantiate any expenses.
The ATO are kind of unbendable when it comes to their ‘no receipt = no deduction’ policy, so failing to keep every single docket for every single item you intend to claim could cost you a bundle in a reduced return.
- Consider prepaying expenses to reduce your EOFY tax burden.
Paying ahead of schedule for things like your property rates, insurances and even interest repayments provides you with additional claimable expenses and the chance to increase your return significantly.
This can be a particularly beneficial strategy if you anticipate a lower income next year for some reason – perhaps you‘re planning to start a family and use some of your maternity or paternity leave for instance.
- Arrange a depreciation schedule.
If your property was constructed after 18 July 1985, you could be sitting on a veritable goldmine of deductions and should arrange for a depreciation schedule from an appropriately qualified quantity surveyor.
Sure it will cost you to acquire their services, but given they can save you thousands at tax time; it’s a fee you’ll quickly recoup and be very grateful you paid!
The same tip applies to property investors who’ve manufactured equity by undertaking renovations or any significant repairs to their asset, like replacing a hot water service.
Often investors make the mistake of claiming capital improvements or initial repairs as an immediate deduction. But it could serve you better in the long term to add this to your depreciation schedule and claim a deduction over 40 years, were possible.
- Claim what you can, but don’t get too creative.
Don’t get greedy! There are so many claimable expenses related to the holding of real estate assets that there’s really no need to push the boundaries.
Remember, there’s a distinct chance you could end up in the auditor’s sights this year. By all means, claim every legitimate cost you can provide evidence for, but don’t risk committing a federal offence for the sake of a few extra (questionable) deductions.
- Know what types of interest expenses are claimable.
A common misconception among property investors is that the security used to obtain a loan (ie. the property) is what makes interest repayments claimable.
The fact is it’s the purpose of the loan that determines its deductibility. Only interest expenses on borrowed funds used solely for investment are an allowable expense.
The ATO might request evidence of correct documentation and intention if you plan on capitalising interest, so it’s crucial that you have a clear paper trail pertaining to your property investment activity.
- Consider a different approach – PAYG variations available to investors.
Investors who hold negatively geared property can apply for what’s known as a 1515 or PAYG Tax Variation. This form reduces your tax burden with each pay, rather than having to wait until the end of the year, thereby improving your cashflow position.
- Claim expenses related to checking out your investment.
All costs associated with travelling to inspect your property and/or conduct any necessary maintenance are tax deductible, including things like airfares and accommodation.
Again, just make sure you can justify the trip and that you apportion any personal component – like visiting your Great Aunt Jean who lives nearby for two days – accordingly.
- Go with a professional.
Today’s increasingly time poor property investors cannot possibly expect to do everything themselves without any professional assistance and still succeed in creating wealth through residential real estate.
Surround yourself with a top team of relevant experts and advisers, including a darn good accountant who knows the ins and outs of property investment (because they’re an investor themselves). They will not only provide you with important guidance at tax time, but also as you build your portfolio and evolve your investment strategy.
If you would like more tips on how to improve your cashflow and boost your serviceability ceiling, as an active property investor looking to grow your investment portfolio, why not connect with us here at Trilogy?
Our experienced brokerage team might not be able to do your EOFY returns, but we can advise on the best possible finance structure to optimise your cashflow position and ensure you stay on the path to property investment success. Click here to connect with us today.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).