Happy End of the Financial Year! As the end of the 2016 financial year comes around, we spoke to those in the know about what owners can do to get the most out of their tax return when it comes to their property.
Repairs – Repairs are completely tax deductible. If there is a sink that needs replacing, fence that needs fixing, or door that needs mending, 100% of the maintenance can be claimed as an expense on the property. Buyers should “be undertaking these repairs now”, according to Suntax Senior Accountant, Aaron Weakley CPA.
Owners “shouldn’t wait to get this sort of stuff looked at” said Weakley. Complacent owners will miss out on claiming any repairs this year if they are made after June 30; it is after all human nature to put things off until they absolutely need to be acted on. And then there’s always the risk of completely forgetting about claiming them next year.
“If there is any repairs that have to be undertaken immediately, we recommend to engage the services of a Tradesman before 30 June 2016, so the expense can be claimed as a tax deduction in 2016 financial year” says Chas Sauro, Director of Acorn Consulting Group.
The faster owners can arrange to have any maintenance done, the better. Tradies can be busy at this time of year doing these kind of jobs and tardy owners might miss out on finding a tradie before the 30th of June.
It’s also important to remember the difference between a repair and an improvement. “Identify closely between Repairs versus Improvements. If a Landlord incurs an expense to bring the property to its original state, then generally the expenses are fully deductible” said Sauro.
Prepay Interest – Interest on loans can be prepaid for the coming financial year and claimed as an expense in the current financial year.
“If you have the money available, prepaying the interest for the coming financial year can be claimed, but it can only be prepaid for the maximum period of 12 months in advance” says Suntax accountant, Scott Davis CPA.
“If for example you have made a capital gain from a property sale in this financial year, and then bought a second and have some money left over, you can then use that to prepay the interest you expect to incur in the coming year and claim it as an expense in the current year in order to offset some of your capital gain incurred.”
Every bank is different and owners will need to speak to their broker or lender about how they can go about doing this.
Financial Check-Up – Although not directly related to tax time, the end of the financial year is a timely reminder to get a financial check-up. Property owners should take the time to speak to financial experts, their lender, or their broker to ensure their loan is the best available.
Loans can sometimes be “set and forget” according to Aaron Weakley. “Owners should check if there is a better deal they can get on their loans. 1% over a number of years all adds up.”
Extra Expenses – Owners can actually deduct travel expenses incurred to visit their investment property. “This includes visiting the property to inspect, or to make improvements or maintenance” said Chas Sauro. Tax agent fees for engaging an accountant to prepare your tax returns are also deductable, according to Sauro.
Depreciation Schedule – Owners should also seek out a Quantity Surveyor in order to claim deductions on depreciation.
A Depreciation Schedule will allow owners to claim on the depreciation of their asset over time as an expense. There are almost 8,000 items that can be deducted from an investment property, ranging from larger items such as heating and cooling systems and flooring, all the way down to garden gnomes.
Despite the amount that can be deducted, the vast majority of owners don’t utilize deductions to maximum effect; only an estimated 20% of owners deduct to their full extent.
Owners will need to prove how they concluded the value of their deductions, and this is where a Depreciation Schedule can come in handy. Owners will be fully aware of all the deductions they can claim, and the fee to engage a Quantity Surveyor is also tax deductable.
Negative Gearing Deductions – Chas Sauro also recommends looking at how negative gearing deductions can be made through salary payments.
“If your property is negatively geared you can complete a PAYG withholding variation to reduce the PAYG tax withheld from your salary and wages to have less tax taken out of each wage payment” said Sauro. Owners should definitely “speak to their tax professionals for further assistance” before choosing this method.
Disclaimer: National Property Buyers is a not a financial advisor. Owners should speak to their relevant financial advisor when submitting deductions.