When the end of the financial year is nearing arrival, it
is an opportune time to get all of your documents and information ready for you
or your accountant to prepare your tax return. As soon as you have an asset
such as an investment property to account for each financial year, there’s
opportunity for tax savings to derive the most value possible from your
property, but you can’t do this without all of the right records. Below, we’ve
outlined everything you need to get ready for tax time as a property investor.
Check what income you need to declare
The first thing to check at the end of the financial year
is how much income you derived from your property throughout the year. This
income will likely include rent, but it may also include rental bonds from tenants
who default, or any other booking fees and payments received.
Maximise your deductions
As a property investor, there are a number of expenses
you can claim. On their website, the Australian Taxation Office states, “You
can claim a deduction for your related expenses for the period your property is
rented or is available for rent.” Common deductions you can claim include
repairs, management and maintenance costs, interest on bank loans, renovations
and improvements, and depreciation. Remember, large scale renovations have to
be deducted over several years, similar to depreciating assets, as these are
classified as capital works.
Capital gains tax (CGT)
If you sold an investment property in the financial year,
you might need to pay capital gains tax (CGT). CGT has to be paid in the year
it is incurred. It applies to any profit you make from the sale of your
investment property. The capital gain on your property is the sale price of
your property less all expenses paid to manage it.
Keep accurate records throughout the financial year
You can save time and headaches at tax time by keeping
detailed and accurate records throughout the financial year. If you haven’t
already, consider setting aside some each month to review the documents for
your investment property. This will include documents such as rent receipts and
ledgers, and receipts for repairs and maintenance. Further, having a quantity
surveyor draw up a depreciation schedule can help you maximise your deductions.
They will estimate the cost to build or renovate your property and estimate the
useful life for the depreciable assets in your property.
Tax time provides a great opportunity to assess how your
investment property performed throughout the year. Considering what worked
well, what didn’t work, and how you can derive more value from your investment
property in the next financial year will help you ensure your property is
helping you meet your wealth-building goals. Remember to talk to your
accountant for specific advice on meeting your tax obligations while maximising
your ability to claim the deductions available to you.
Remember, this article does not constitute financial or
legal advice. Please consult your professional financial and legal advisors
before making any decisions for yourself.
