It is financially rewarding but complicated to manage and navigate your way around reporting taxes. One area of focus when planning for your taxes is to consider the implications of your investment property. While the investment property provides rental income (increasing your taxes), it can also provide tax reductions.
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Understand what you can claim
You can claim expenses related to your investment property such as council and water rates, strata levies, insurances, property management fees, bank fees, repairs and maintenance, interest on loans, depreciation and land tax.
Do note that travel expenses to and from your investment property can NO LONGER be included.
Working with your accountant is important
Providing your purchase settlement statement and loan disbursement schedule
If you have an accountant, you will be asked to provide your purchase settlement statement and loan disbursement schedule for properties you have purchased in the financial year. This will tell the accountant the fees you were charged to set up your investment property loans.
Tax Depreciation Schedule
A note of advice is to have a tax depreciation schedule for your property. This is a important task for all investment properties you own because the depreciation loss of your asset can be claimed to reduce your taxable income. The cost of preparing a depreciation schedule is also tax-deductible. Many property investors actually missed out on updating their depreciation schedule, especially when an improvement has been made to the property. Our earlier blog and Facebook Live event covered this topic in-depth. (link here)
Can you pay upfront on your rent or insurance? Do you have capital expenditure that you should get in for this financial year to lower your income? While everyone has their own unique situation and circumstances, it is worth it to take the time to assess these options. A note here for business owners is that the abolishment of the $450 per month threshold for super guarantee eligibility which will start in 1 July 2022 (not 1 July 2021 as mentioned in the video), will increase expenses on the business end.
Be it for your primary residence or investment property, the ownership structure for the asset is important. Should you consider tenants in common? Or a family trust ownership? You need to work out what is most effective in your situation, and an accountant can help you figure that out.
Work related deductions
If you worked from home (especially during this Covid-19 lockdown period) you may be eligible to claim expenses under a home office setup, computer and peripherals depreciation, stationary consumables and even the internet bill.
If you are due to invoice a customer for a recently completed job, does it make tax dollars sense to delay it to the next financial year? You will need to work out your effective tax and implications doing either or, and that is where a dedicated tax accountant can come in handy.
Should I lodge my taxes early to get refunds earlier?
The ATO has asked to not lodge taxes too early to avoid ommision of income. The ATO will start full processing of 2020–2021 tax returns on 7 July 2021. It expects to start paying refunds from 16 July 2021. Also a reminder that you should be fully aware and report all your income, especially when you may have employment, investment or rental income coming from various sources.
Resources for lodging your tax returns:
- Use this checklist provided by Amanda (available for download)
- Refer to our tax depreciation schedule blog
If you need help with tax planning for property investors, reach out to Amanda from RittWatchman and Associates for a chat. The Rise High team can help you with refinancing your ongoing loans, reducing interest expenses and essentially saving your money! Fill in the form below and we will be in touch!