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How to make the most of tax time

Whilst some people dread the looming End of Financial Year (EOFY) deadline as the 30 June rapidly approaches, investors should be embracing it.

Why?

Because EOFY is a prime time for investors to take stock of their financial position and maximise the tax benefits associated with owning an investment property. If you get yourself organised, EOFY should be a walk in the park but every year we are constantly surprised by the number of investors who miss out on opportunities and cost themselves money because they make simple and easily avoidable tax time errors.

To make sure you are not guilty of doing the same, we have compiled a list of basic ‘rookie tax errors’ you should try to avoid this financial year.

1. Leaving it too late

There is little over a month until June 30 so don’t leave it too late to get organised. For accountants and financial planners, it is their busiest time of year so if you contact them on the 29 June, you can’t expect them to drop everything to attend to your questions. Make contact with your accountant as soon as possible to start planning for your EOFY – the more time you have up your sleeve, the better.

2. Going it alone 

Too many investors think they can ‘go it alone’ and don’t need the expert advice of a qualified accountant or financial planner to assist them with EOFY. Worse still, they don’t want to pay any extra for their services or advice ahead of June 30. What many investors fail to realise is that expert accountants know exactly what you need to do to maximise your claims and deductions and can actually save you money in the long run – often thousands of dollars. So don’t make the mistake of failing to surround yourself with the best in the business.

3. Failing to organise your depreciation schedule

If you own an investment property you are entitled to claim depreciation which accounts for the reduction in the value of your asset (or property) over time. For new properties, the timeframe is 40 years. The benefits associated with claiming depreciation on your investment property are significant (often worth hundreds of thousands of dollars) and one of the biggest mistakes you can make as an investor is failing to organise a tax depreciation schedule for your investment property. To qualify for these legitimate tax deductions, an investor must have a fully compliant tax depreciation company undertake an on-site inspection of the property and then compile a depreciation report. Estimates of tax depreciation benefits will not be accepted by the ATO. Property investors should check that the company undertaking their tax depreciation schedule is a member of The Australian Institute of Quantity Surveyors (AIQS) and make sure you allow sufficient time for the company to prepare the report. Tax depreciation is complicated so it is essential you receive the right advice.

4. Claiming the wrong deductions 

Unfortunately many investors claim the incorrect deductions for a wide range of reasons. For example, an investor may claim deductions for a rental property that was only available for rent for part of the year (such as a holiday home) or incorrectly claim structural improvements as repairs when they are actually capital works deductions (such re-doing the kitchen or replacing the fence surrounding the property). It is important you know exactly what you can or can’t claim and your accountant should be able to assist you with this process.

5. Pushing the boundaries 

Some investors push the boundaries and try to claim their own expenses against their investment property. For example, they might pay for a carpet clean or buy a hot water system for their own home and claim it against their investment property. This is risky business and the ATO is always keeping a watchful eye out for such behaviour with regular audits. You are expected (and required) to keep meticulous records so don’t push the boundaries. It will always come back to bite you in the long run.

6. Missing opportunities 

If you don’t carefully explain your plans and intentions to your accountant or financial advisor, you could potentially miss out on opportunities to minimise your tax. For example, if you don’t intend to rent your property again in the next financial year, it is important to incur any planned expenses before the end of the current financial year. This means organising for the work to be done (even if you haven’t paid for it yet) because if you don’t incur the costs now you can’t claim them in the next financial year if you do not earn any rental income on the property. So make sure you organise these works early and advise your accountant so they know to claim them on your behalf!

7. Forgetting about your time and travel 

Did you know that you can claim your own time taken to inspect your investment property, including travel? Many investors don’t and miss out on this easy deduction. So make sure you keep a time and travel log and provide full details to your accountant before June 30.

8. Missing the bigger picture 

Many investors are guilty of navigating their way through June 30 and EOFY without stopping to look at the ‘bigger picture’ and the overall performance of their investment. EOFY is the ideal time to ask yourself the following questions:

  • Am I maximising all the available deductions available to me?
  • Am I staying abreast of my obligations as an investor?
  • Is my investment property achieving my investment objectives?
  • Am I achieving the optimum rental returns for my property?
  • Is my property manager managing my property effectively?
  • It is time to undertake any repairs, maintenance or improvements to the property?
  • Do I have the best finance package for my property?
  • Is it time to expand my investment portfolio?

The EOFY is one of the best times of the year for investors to make sure they are on track towards securing their own financial security through property investment. But unfortunately often it’s not until after the EOFY has passed that investors realise they need to take action and by that time it is too late to make any improvements to their position with regards to their taxes in the current financial year. It’s another year gone and another opportunity missed.

The good news is EOFY is still a few weeks away so you have time to take action. An experienced professional including your accountant, financial advisor or a Property Investment Specialist from Investor Assist can help you get the process started. Just contact us here and we can point you in the right direction!