Tax time tips as end of financial year looms

10 June 2023

We’re on the cusp of the end of financial year and tax time is just around the corner.

For property investors, whether residential or commercial, this time of the year can herald significant opportunities to make tax savings.

Here are some tips for investors for EOFY tax time.

Record-keeping

Investing in property can attract significant tax benefits for private landlords and commercial investors, but the Australian Taxation Office requires owners to retain records and receipts to make deductions at tax time.

This includes keeping track of all rental expenses including interest, maintenance, repairs and depreciation, as well as documentation of damage and repairs undertaken to the property.

If the ATO audits your tax return and you are unable to provide evidence of your claims, you may be denied these deductions and possibly face financial penalties.

PAYG withholding variation

Many property investors often wait until the end of the financial year to claim tax deductions like expenses and the interest paid on the investment property home loan, meaning any tax refund will be made in a single lump sum annually.

However, it can create cash flow problems for some investors during the course of the year. Some investors instead opt to apply to the ATO for a Pay As You Go (PAYG) withholding variation, which enables them to make tax payments during the year and receive frequent tax deductions.

A trusted accounted or financial advisor can provide advice about this strategy to determine if it is the right fit for you and your circumstances.

Capital gains tax

While property markets in other states are now in recovery mode after downturns, house prices in Perth are continuing to see significant growth.

While this is positive news for property owners, for investors looking to sell, this growth should be carefully considered against potential capital gains tax (CGT).

CGT is charged on the profit that investors make on the sale of an asset, and is usually the same as your income tax rate for that financial year.

If you have held the investment property for over a year, you can apply for a 50% capital gains tax discount, and investors who have made a capital loss are not required to pay CGT.

Deductions

Deductions for council rates, strata fees, advertising for tenants, water, cleaning, repairs, insurance, property management fees and gardening and lawn mowing can be claimed for rental related expenses while a property is leased or available for rent.

In addition, there are other expenses that can be claimed gradually over several years. These include loan establishment fees, lender’s mortgage insurance, title search fees, mortgage broker fees and stamp duty charged on the mortgage.

However, deductions are not available to investment properties that are not rented or available for rent, such as holiday homes. Generally the rule of thumb is: if the property does not generate rental income, deductions cannot be claimed.

Depreciation

Depreciation can be claimed as a tax deduction for fixtures in rental properties such as carpets and installed appliances to reduce taxable income.While renovations and home improvements are not generally able to be claimed immediately, landlords can claim depreciation over a period of time.

Other expenses such as loan establishment fees, lender’s mortgage insurance, title search fees and mortgage broker charges can be claimed over several years.

It is worthwhile commissioning a specialist to draw up a depreciation schedule, which is tailored to the residential or commercial rental property and sets out the depreciation sum that can be claimed over time.

The reports usually cost a few hundred dollars but can be invaluable at the end of the financial year, saving time and money. And the fee to have a depreciation schedule compiled is also tax deductible.

Let an expert help

Engaging a professional accountant will ensure you make the most of your annual tax return.

A good accountant will understand your financial position and be able to provide informed advice about your investments as well as any deductions you can claim.

For more information, visit the Australian Taxation Office website at www.ato.gov.au

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