Tax-time tips for first time investors – how to maximise your refund
For first-time investors, tax time can be equally daunting, as rewarding.
Hopefully, you’ve been diligently sorting and filing all expense receipts and invoices throughout the last financial year, whilst simultaneously maintaining a highly detailed, income evidence log, with the intention to smoothly sail through tax time, unscathed.
However, if you’re like the majority of first-time investors, you’re probably erratically scrambling to find receipts and invoices, digging into the depths of your wardrobe, in hope to find your old shoebox over-flowing and completely stuffed full of back-dated receipts!
If you are the latter, I’m really glad you found your way here.
You’re in the right spot.
Now, let’s dissect the most effective way to organise yourself, plus uncover claimable expenditures to maximise your tax-time savings.
Firstly, get organised!
For those who have spent a good portion of this financial year, hiding receipts throughout the house, thinking they’ll reconcile them shortly, only to find that in fact, you’re surrounded by molehill’s of receipts – stop. I mean it. Do yourself a favour and go directly to your closest office supply shop and invest in a sturdy filing cabinet. You’ve invested in a house – it’s not going anywhere soon (unless you decide to sell it), and nor are the expenses and their associated receipts.
Be sure to clearly mark two separate spaces, one for expenses and one for income. File accordingly. And believe me, this time next year, you’ll thank yourself for having made this pivoting, life-changing decision. Not only will this tidy up your molehills, it will also better prepare your accountant to decipher your entitlements. You’ve got a slither of time up your sleeve to get yourself in line and prepared for the deadline of June 30th, make these last few weeks count!
Not only are Property Managers a wonderful asset when it comes to the organisational and management aspect of owning an investment property, their management expense, and associated costs, such as advertising for tenants, can be a deductible expense. Fees incurred due to adapting or changing a lease with an existing tenant can also be a tax deduction.
A Property Manager will coordinate maintenance trades, oversee tenants, help reduce landlord stress, and carry out all associated administration responsibilities. Many should also be able to provide completed paperwork to utilise at tax time. What a bonus!
Insurances and other property expenses
Often overlooked, landlord insurance premiums are another possible tax deduction. Although it’s a busy time collating the associated documentation for your accountant, it’s also a great time to review and confirm your existing coverage is adequate and relevant to your situation. For first time investors, it’s important to note that standard ‘house and contents’ insurance is not adequate in covering an investment property, as many don’t substantiate the added risks involved with investing/tenanted properties. Specific, ‘landlord insurance’ or the like, is what will be required here.
Other properties expenses, such as body corporate fees on strata or community title properties, council rates, land taxes, maintenance expenses, and general water and sewerage fees can also potentially be tax deductible. Owners who choose to rent their properties out fully furnished, also have the potential to claim rental income as a possible deduction.
Maintenance vs. Improvements
This is a surprisingly interesting area, especially for first-time investors, as many wouldn’t be aware that in fact any improvements carried out to the property, that are NOT related to wear and tear or damage, cannot be claimed in the associated financial year, as a deduction. Instead, this type of cost is categorised as a capital expense and are claimed over a number of years. An example of this type of improvement could be a kitchen renovation, adding an additional structure such a deck or undercover area; basically, anything deemed as increasing value or furthering a property’s desire.
General maintenance, however, carried out due to wear and tear, or damage (possibly from a tenant), can be immediately claimed. This type of expense could be as simple as replacing a broken window, a broken tap, maintaining/cleaning a swimming pool. Generally, any repair to limit deterioration or maintenance to reduce/rectify damage can most likely be a deductible expense.
If, like the majority of us, you’ve taken a loan from the bank to purchase your investment property, the interest incurred on the total loan amount, will be a tax deduction. Although, there are a few little details worth noting here. Firstly, your investment needs to be available for rent. This means, you either need to have a tenant occupying the home, or, it needs to be actively advertised as an investment, to qualify for the interest to count as an expense.
Here’s where it can get a little tricky…
If you have an investment property, which doubles as a holiday home for family, friends or yourself, only the portion of interest related to the period in which the property is utilised for investment, will be calculated as a deduction. If this is the case, it’s imperative you keep a logbook outlining the time between investment vs. private use, as you’ll need to provide confirmation around the timings of these.
How we can help
With a few more weeks left up your sleeves before the 30th of June hits, you’ve still got time to correlate your financials and become that savvy, ‘got it together’ investor. Make sure you showcase your entire portfolio of receipts to your accountant, in pursuit of the up-most transparent overview of your solid investment, helping to maximise any hidden entitlements. Ultimately, the more tax deductions you can claim on your property, the higher your tax benefit. Keep in mind that the goal with investment is to gain wealth; by claiming every deduction you are helping to grow your investment position, increasing your wealth.
If you’re looking to either add to your investment portfolio, sell an existing or purchase your first, our agents are ready and waiting to help guide you in the right direction. To find out more about how an Eview Group agent can help you, visit www.eview.com.au.