"Property investors have a range of methods available to them to add to their tax return, and they aren't always too difficult!" - Mitch Connolly, Senior Investment Analyst
Article written by Mike Mortlock at Australian Property Investor
Many property investors believe that come June, it’s too late to implement actions that will boost their tax position – but they’re dead wrong.
By making these moves now, you could see thousands of extra dollars come back to you from the ATO just weeks later – but my advice is to act immediately.
But investors must be proactive about maximising their financial position in 2021 given the lack of support elsewhere.
We cover all the bases when it comes to financial strategy.
While national property values have risen strongly in recent months, there’s been precious little support from authorities for Aussie investors over the past year.
The Federal Budget, delivered pretty much no relief for investors – so they need to take action themselves in order to boost their benefits before 30th June.
Here are five easy steps property investors can make to add thousands to their tax return:
June is the perfect time to tackle all the minor maintenance for your investment property that’s been building up during the year.
There are often many small repair items needed on an investment, but because they don’t materially affect its appeal or rentability, owners are inclined to put off attending to them.
For example, it could be just minor fixes, paint touch ups or some garden maintenance.
Now is the time to act, because any costs you incur in June are 100 per cent tax deductible in July.
Miss this window of opportunity and you’ll be waiting another year to get the benefit.
For those with the financial means – or perhaps a sudden windfall – the ability to pay your investment loan interest in advance can be an extremely cost-effective way to get a sterling tax return.
Depending on your loan arrangements, paying a huge lump of interest in June can provide a substantial write-off come July.
It’s a strategy few investors realise is open to them each financial year.
Here’s my other pro tip – If you’ve redrawn equity from your investment property loan, make certain those funds have been used for investment purposes, or the ATO will take you to task.
More substantial upgrades to your investment provide excellent tax advantages, and some can be done quickly to allow you a benefit this year.
Making any addition to your investment will result in some great deductions, but not all are created equal.
For example, adding new tiles will only get you 2.5 per cent of the cost as a deduction each financial year, so doing that in June means you only get one month’s worth of that amount.
However, there are smarter ways for investors to bring upgrade deductions forward.
One of those is to install items worth $300 or less. This could include kitchen appliances, window blinds and curtains, air conditioners and other generally non-structural assets.
As an example, installing a $280 ceiling fan means the amount is deducted straight away.
Also, choosing the right fixture will bring immediate relief. For example, if you install tiles worth $2,500, you’ll get $62.50 times the number of days in that financial year as a deduction. But change the tiles to carpet and it’s 10 times that amount as a 25 per cent deduction.
Finally – consider installing equipment priced under $1,000 as some deduction rules make this type of outlay late in the financial year extremely lucrative in terms of tax.
Not enough people use June as an opportunity to check in with their professional advisors.
Property managers keep a running tally of deductible repairs and upgrades as part of their annual rental statement, and this will be required reading for your accountant.
In addition, your property manager will provide advice on works they can coordinate in the coming weeks that will help improve your deductions by year’s end.
The other great thing about accountants and property managers is their fees are also tax deductible.
Don’t forget to include those professional costs as part of your tax return this year.
Depreciation schedules prepared by suitably qualified professionals assign hugely advantageous tax-deductible depreciation to your property’s fixtures, fittings and finishes.
If you haven’t already organised a depreciation schedule, then get onto it today!
It is extraordinary the number of investors who miss out on literally thousands of dollars in benefit simply because they don’t get a depreciation schedule.
These reports cost a few hundred dollars, so the return on cost is exceptional.
At MCG, we completed a study which revealed the average loss in deductions due to investors simply taking too long to arrange for a depreciation schedule was a staggering $20,000.
We even had one investor who waited almost 18 years to do a schedule and lost $41,000 in tax breaks as a result.
In fact, if you extrapolate our findings across the nation's total investor population, Aussie landlords are potentially short $2.886 billion on their claimable losses.
We specialise in reviewing and implementing unique financial structures that encompass all facets of our clients’ financial life.
Source: Australian Property Investor
Mortlock, M. (2021, June 2). 5 easy June actions providing huge July dividends. Australian Property Investor Magazine. https://www.apimagazine.com.au/news/article/5-easy-june-actions-providing-huge-july-dividends/