As we head towards the end of the financial year, now is the time to take steps to get your tax affairs in order and look at any last minute planning to maximise your return. Here are my tips for a happy tax time:
Check your paperwork
Take some time out to gather together all the information you will need to help you prepare your tax returns, including invoices and receipts for expenses you want to claim in relation to your investment property and any bank/credit card statements that contain details if expenses that you no longer have (or never had) receipts or invoices for.
If you’re not sure if it’s claimable, collect together the receipt or invoice anyway and discuss it with your tax agent. If you don’t have the paperwork, you can’t claim a deduction so it makes sense to set aside this time in advance of the end of the financial year to spare yourself a stressful document hunt whilst you’re actually in the process of getting your return prepared!
In addition, if you’re claiming any expenses that have a private element (such as for the use of a personal mobile phone) set some time aside to work out what a reasonable apportionment is for the bit that relates to your property investment activities (such as speaking to tenants or agents).
In addition, make sure you have proof that your property was available for rent, such as rental listings. You may have lost a tenant due to COVID-19 and then experienced a longer than normal period of vacancy due to a downturn in the rental market. You’ll still have incurred fixed expenses through that period however and you’ll want to claim a deduction for them, which is only possible if the property was available for rent so being able to demonstrate that to the ATO is more important this year than ever.
Are there any tricks on getting the best tax returns?
In addition, check with your tax agent that you are claiming everything that you are entitled to.
As well as the obvious deductions like mortgage interest and repairs, you may not know that you can claim for the following:
- Prepaid expenses. If you pay an item of expenditure this year that wholly or partly relates to next year, you can a claim a deduction for the full amount this year. This is particularly useful with expenses that straddle the tax year, such as insurance policies or subscriptions.
- If you use your home phone, computer or internet services, or your mobile phone as part of the management of your investment property you can claim an appropriate proportion as a tax deduction.
It can also be worthwhile getting a Quantity Surveyor to quantify the depreciation claims that you are entitled to. Depreciation is generally one of the larger deductions, it is difficult to correctly work out and many homeowners miss out on potential deductions by incorrectly claiming.
Get repairs done in time
Many property owners incur significant expenditure on repairs to their property that would normally be tax deductible but that isn’t always the case.
Deductions for repairs are allowed to the extent that they relate to the period of time during which the property was rented and provided the expenditure was incurred in the same year.
Deductions are not allowed if either or both of the following occurred:
- The repairs relate to defects that were not related to the income producing activity (for instance, a defect that arose after the tenant moved out and unrelated to the tenancy)
- The repair expenditure was incurred in the tax year after the tenant moved out
If your tenants have moved out during the year, make sure you undertake any repairs before the end of the year to lock in a tax deduction. That might not be so important if you intend to find another tenant next year but if you don’t intend to replace the tenant (for instance, you’re thinking of selling), it’s vital that you incur that expenditure by 30 June.