Top Tips for Perth Property Investors and Landlords to Get Financially Fit for the New Financial Year
The new financial year is the perfect time for Perth landlords and property investors to get financially fit and start planning for their future.
With changes to tax laws and other regulations taking effect from 1 July, it’s important to understand what you need to do to make sure you’re compliant and maximising your profits.
Smart property investors and landlords know that one of the best ways to do this is to maximise their tax deductions and prepare themselves to take advantage of every tax-deductible opportunity in the coming year. This is so that their financial fitness lasts beyond just 2022 and into the future.
Most investors and landlords are familiar with the typical tax deductions such as repairs and maintenance fees or interest on loans. But there are other ways investors can reduce their taxable income each financial year.
So here are our top tips for getting financially fit for the new financial year:
1) Prepare a tax depreciation schedule for your property and other assets
Depreciation is one of the most valuable tax deductions available to property owners and investors each year. For those who don’t know – depreciation refers to the amount that income-producing assets have declined in value over the financial year. For landlords and property investors – this is any property they own.
Calculating the depreciation on different assets is a complex process, and it is best to engage a qualified quantity surveyor to prepare your tax depreciation schedule for you. Not only do they know which assets qualify for depreciation, but they also know the Australian Taxation Office (ATO) guidelines on expected lifetimes and depreciation percentages for each type of asset.
Your tax depreciation schedule is effectively a list of all the items that you own and how much each item has depreciated since you bought it. It’s important to keep a record of everything you’ve spent related to a specific asset so you can make sure this is included in the schedule. There are two types of schedules you can ask for – a full schedule or a simplified one.
A full schedule is more comprehensive and will take all aspects of an asset into consideration. This is the best option for a property that has been steadily upgraded or added to over time. A simplified schedule is shorter and far less detailed. This is effective for a property that has had very few renovations and improvements made to it since you purchased it.
The great news is that the fees for hiring a quantity surveyor are tax-deductible – so you get even more savings in the long run.
2) Complete repairs and maintenance before 1 July to claim against them this year
You are inevitably going to be performing maintenance and even repairs at some stage when you own a rental property. Over time, all tenants will cause some wear and tear through everyday use. And unexpected issues do sometimes crop up – such as leaking taps or a hot water system packing up.
The good news is that you can absolutely claim the cost of these repairs and maintenance on your tax returns. The bad news is that claiming repairs and maintenance can be tricky, as some can be claimed immediately – in the tax year that the repair was made. Some repairs, on the other hand, can only be claimed over time.
Ongoing repairs can be claimed in the year that they occurred. Ongoing repairs are directly related to the normal wear and tear or damage incurred as a result of the property being a rental. Examples of ongoing repairs include things like having to perform emergency repairs due to a roof being damaged in a storm or having to replace the hot water system due to a water heater bursting.
Repairs that qualify as capital works have to be claimed over a number of years. These are usually the repairs made for any damage that was already there when you bought the property. They include things like replacing window treatments laying new carpets, or repairing broken tiles or floorboards on the property.
A repair would also be classified as a capital work if you decided to do a full replacement instead of only the modest repair that was needed. Let’s use the example of the damaged roof above. Say only a small portion above the garage was damaged, but you decide to replace the whole roof because it is quite old and you’d rather be safe than sorry – that counts as capital works.
Making a simple mistake on a tax return can end up costing hundreds if not thousands of dollars – so it is always best to get help from a tax professional wherever possible. You will also need to ensure any repairs are completed by a qualified and registered tradesperson in order to claim them as tax deductions.
3) Know what you can claim
The ATO is making a concerted effort to prevent property investors from using dodgy deductions to profit. And the punishment for trying to game the system can be as much as double the tax you avoided initially as well as interest. One type of property investor that is under closer than usual scrutiny is the owners of holiday homes, especially those who are using vacation homes for themselves only but claiming deductions unrelated to any income received.
To make things a little easier for you, we’ve put together this list of some of the most common items that property investors and landlords in Perth can claim as a tax deduction:
- Certain bank fees including interest on loans, mortgage discharge expenses, and bank charges.
- Insurance costs including insuring contents, building insurance, and public liability insurance.
- Governmental and other fees such as body corporate fees and charges, council rates, and land tax.
- Legal expenses including the preparation, registration, and stamp duties for lease documents. Note that legal fees do NOT include those related to acquisition or borrowing costs.
- Fees for providing tenant services such as gardening and lawn mowing, in-house audio and video service charges, cleaning services, swimming pool servicing, pest control, and annual guarantee fees for electricity and gas.
- Tax-related expenses including quantity surveyors fees, and secretarial and bookkeeping fees.
- Property management fees including fees and commissions for property agents or managers and expenses incurred when attending property investment seminars aimed at improving the performance of investment property you currently own.
- Costs related to repairs and maintenance including temporarily relocating a tenant while a property is unfit for occupation, obtaining a defective building works report on repairs and maintenance conducted, annual service fees on items such as smoke alarms and water heaters, and general repair and maintenance costs. Remember that there is a big difference between repairs and maintenance, and you should take this into consideration when preparing your tax returns each year.
- Costs related to ensuring your investment property is compliant with the landlord and property owner codes such as electrical safety certificates, minimal levels of security compliance, and others.
Some tax deductions that can be claimed over a number of years include:
- Capital works deductions.
- Establishment fees for loans, title search fees charged by a lender as well as valuation fees incurred when applying for a loan.
- Mortgage costs related to preparing and filing mortgage documents, mortgage broker fees, lenders’ mortgage insurance billed to the landlord or property investor, and stamp duties on mortgages.
4) Speak to an expert about helping ensure you’re financially fit
Whether you own just one investment property or you have an investment portfolio featuring everything from residential homes and commercial properties, we can help you make sure you’re maximising your profits as the financial year-end looms. With our proactive approach to property management, we can help you realise the true value of your property investment.
Not only will we advise you on the practical steps you can take to improve the value of your property – we’ll also help you ensure that you are getting the most bang for your buck when it comes to tax season. We’ll do all the work and provide you with an annual financial summary that you can use when the time comes to file your tax returns.
And if you’ve got multiple properties, hiring us to manage them all means you get easy access to any financial documents you need as well as the simplicity of reporting continuity. That means there is no need to phone and email multiple people for each of your investment properties, and then having to decipher the different formats that each company uses for their reports.
Ready to get financially fit with your Perth property investments?
If you want to get financially fit and optimise your property investments in the lead up to the end of this financial year, contact us today!
And if you’re not a property investor yet but would like to make sure you’re financially fit before you start applying for loans, we can help with that as well!