For most people, a new financial year means time to prepare an income tax return.
They’ll lodge their return, hopefully get a refund (or maybe have to pay some extra tax) and then forget about it until next tax time rolls around.
For property investors, it has added meaning. It’s a great time to take stock of how your investment is performing and set some things in place to ensure you’re in an even better position next tax time.
Here are five smart tax tips for this new financial year.
1. Visit your Financial Advisor
If you haven’t visited your Financial Advisor in a while, make this financial year the time to do so.
They’ll be able to assist in reviewing the performance of your investment and advise on whether you should set new goals or adjust your current investment strategy.
It’s also a great way to get a holistic view of your finances, which can be hard to do on your own.
A good Accountant or Financial Advisor will also ensure you’re claiming everything you’re entitled to as an investor. Speaking of which…
2. Make sure you’re claiming all the deductions you’re entitled to
As a property investor you’re entitled to a range of tax deductions, one of which is depreciation.
Considering depreciation often sees residential investors get an average of $5,000-10,000 in deductions in the first financial year alone, it’s important to take advantage of these deductions if you want success as an investor.
Combined with all the other deductions you’re entitled to for your investment property, such as repairs and property management fees, these deductions really do add up and shouldn’t be overlooked.
Visit BMT’s tax depreciation calculator for an estimate of the deductions you may be entitled to.
3. Be smart with renovations
Are you planning on renovating your investment property in some form this coming year?
If so, you should be smart about it and realise that the assets you choose can maximise future deductions.
Selecting which assets to replace during a renovation can make a difference to future deductions. This is because each asset’s rate of depreciation is calculated based on its individual effective life.
For example, deductions available in the first full year depreciation claim for carpets, floating timber floors and tiles differ.
You can use BMT’s depreciation rate finder to calculate the effective life and depreciation rate for various plant and equipment assets.
Furthermore, if you’re planning a renovation this year, you should contact a specialist Quantity Surveyor before starting work. This is important during the removal or demolition of any existing structure or fixture onsite that would have been eligible to claim deductions for depreciation (division 40) or capital works deduction (division 43). These removed and scrapped assets could entitle the owner to additional claims.
An updated tax depreciation schedule may be required after a renovation to capture all newly installed plant and equipment assets or capital works expenditure.
4. Keep accurate records and receipts
Your Accountant would have told you time and time again to keep receipts of things you need to claim. This advice still stands.
One exception to this is if you’re ordering a tax depreciation schedule from BMT. In this case you don’t need receipts for work completed or new assets installed – this is what our site inspections are for.
Accurate record keeping is essential for investors – it’s a good idea to jot down conversations you’ve had and agreements you’ve made with your Property Manager or with your tenant if you self-manage your property.
This is particularly important for owners of holiday rentals, who need to have accurate records of exactly how many days their property was available for rent in the past year to make legal claims.
5. Consider how you can re-invest your tax return
There’s no doubt that the best part of tax time is getting a tidy tax return.
While it’s tempting to put that extra cash towards a holiday, a car or even put it into your savings, as an investor you should consider if there are better ways you can use this extra cash.
For example, you could choose to reinvest this in shares, put it towards a deposit on a new investment property to grow your portfolio, or use to it renovate or update your existing investment property, which could result in a higher weekly rent and increase the overall value of the property.