Although the end of the financial year is still a couple of months away, there are steps property investors can take now to get prepared for tax time.
Regardless of how many rental properties you have, the key to an efficient EOFY is organisation. The more forward planning, the less time your accountant needs to spend on paperwork and the greater the potential result for you. It also pays to understand what you can—and can’t—claim as a rental provider.
Kay & Burton Team Manager, Property Management, Philippa Leyland-Greaves says it’s important to be on top of your tax all year round, not just at tax time, and speaking to your trusted financial advisor is key.
“Generally, June 30 can creep up on us, but tax is historical so it’s important to always be thinking about what you can do now to assist in the future,” she says. “Once July 1 arrives, it’s a long time to wait if you’re wanting to claim on additional expenses incurred such as maintenance or refreshing your investment.
“Partnering with your accountant year-round can alleviate the stress of tax season, ensuring you’re well-prepared and equipped to navigate the process smoothly.”
While most investors are aware of claiming expenses such as property management fees, rates, home loan interest and insurances, many rental providers overlook the importance of depreciation.
Put simply, depreciation is how much the ATO says an asset decreases in value over time. And there are two ways investors can claim depreciation:
- Capital works allowance (division 43) – Covers the value of a building’s structure. This depreciation is spread over a 40-year period.
- Plant and equipment depreciation (division 40) – Includes removable fixtures and fittings with a limited lifespan. These are expected to decline in value over time and the ATO has a list of effective “lifespans” per item.
Tax depreciation schedules can be obtained at any time, but best practice is for rental providers to secure the schedule at the point a property becomes an investment.
“You can still get a report done after the property has been rented out for a number of years, it will just mean you’ll have lesser depreciation than you would have originally had,” Ms Leyland-Greaves says, adding that rental providers should be aware of how much they can actually claim before they start spending.
A common misconception for taxpayers is the belief that spending $1,000 and claiming $1,000, will result in getting $1,000 back in cash. Instead, legitimate claims against a rental property actually reduce the taxable income your investment property has generated, and therefore your tax obligation.
Depreciation can be one of the more powerful claims to reduce your taxable income, it is also a non-cash claim. What this means is the taxpayer isn’t out of pocket and it can greatly benefit their tax position year on year.
When it comes to tax depreciation, Ms Leyland-Greaves says rental providers should discuss the big picture with their accountant with both timing and a trusted professional team essential ingredients to successful property investing.
Kay & Burton’s property management division provides all rental providers with an end-of-financial-year statement detailing all income and expenditure to assist with tax time. Our property managers can provide details of a qualified quantity surveyor to assist in obtaining a depreciation schedule should you require.
In compiling this article, Kay & Burton relied upon information supplied by several external sources. This article has been provided for general information only and must not be construed in any way as legal or financial advice. Although high standards have been used in the preparation of the information, analysis, views, and projections presented in this article, Kay & Burton does not owe a duty of care to any person in respect of the contents of this document and does not accept any responsibility or liability whatsoever for any loss or damage resulting from any use of, reliance on or reference to the contents of this article. If the reader has any financial concerns, they are encouraged to consult with a financial advisor.