Top Tips At Tax Time
Property investing is just like any other business. Your property is meant to make money for you. So you must pay tax on the profit, but you are also entitled to claim the costs of your property business from your profit before being liable for tax.
The tax benefits are not the reason for investing in property, but they certainly can deliver great hidden benefits to investors.
Tip No 1: Organise your property paperwork
During the financial year you will receive lots of paperwork, including:
- rental statements from your property manager
- loan statements from your bank
- rates notices from council
- strata or body corporate fees for your apartment/townhouse
- depreciation schedule reports
- building and landlords insurance
- tax invoices for repairs and maintenance
- expenses for any renovations/Improvements
I recommend a simple ring binder folder with tabs for each category to store the paperwork during the year. It will be a lot less stressful for you and your accountant will love you for your organisational skills. If you receive most of the above in electronic version, then saving files in multiple folders on your computer system can work well, but do not forget to back up.
To save time and money I transfer all the figures from my property folders into a simple excel spreadsheet on my computer and forward to my accountant at tax time.
Tip no 2: Claiming tax deductions in advance
Receiving a nice fat cheque from the tax department at the end of the financial year can be a thrill. However, rather than wait until the end of each financial year to receive a refund, property investors can take advantage of the PAYG Tax Variation claim and receive the refund in their pay on a weekly, fortnightly or monthly basis depending on your employer’s pay period. This is my preferred option as I have the extra money to help cash flow my property, causing less stress in my everyday life as I believe investing should be set and forget and stress free.
Always allocate this extra cash in your salary into your property buffer or working account so that it builds up for when your rates notices and insurance renewals or strata body corporate fees all come in together.
Tip no 3: How to get maximum tax benefits with depreciation claims
Many investors buying property do not realise how to maximise their tax refund. Your main expenses for your investment will be mortgage interest, rates, insurance, strata or body corporate fees, property management fees, and repairs and maintenance. What most investors forget is the paper expenses and write offs on the depreciation allowed on the building and the plant & equipment.
For a brand new property valued at $400,000 the depreciation write offs can be as high as $12,000 or more in Year 1 of ownership and continue on a decreasing scale for up to 40 years. The good news is that this $12,000 of depreciation is actually a paper “loss” only but is added to other expense losses, giving you a greater “loss” so a bigger tax refund.
Take Advantage of Negative Gearing
If your property expenses are more than your rent then you are running your property business at a loss. If the loss was -$3,000 and you had no depreciation to claim, at 30% tax rate your tax refund could be approx $1,000. So your total “loss” would be -$2,000 = negatively geared property. Too many of these and it will stop you growing your portfolio.
However, if you had a depreciation paper loss of -$12,000, then your total loss would be -$15,000, and your tax refund at 30% tax rate could be approx $5,000. So your total profit would be $2,000 and you would have a positive cash flow on the property (with the help of the tax refund).
Tip no 4: Buy a Tax Depreciation Schedule (TDS)
The newer the property, the higher the depreciation and the longer it lasts. So one of my top tips would be to pay for a Quantity Surveyor to do a Tax Depreciation Schedule (TDS) as soon as you buy the property, and you will find the cost of the report may be a few hundred dollars, but it will make you many thousands of dollars in tax claims and extra income, and help make your property pay for itself along the way.
If you would like my Income and Expense spreadsheet please register on the website at and I will be happy to forward it to you.