Everything EOFY for property investors
Property Tax Tips For A Smooth EOFY
For property investors, the end of the financial year (EOFY) means organising paperwork, evaluating performance and reflecting on future strategies to make sure your investments are working hard for you.
As a property owner, this time of year gives you the chance to review what’s working and implement strategies to fix what’s not. This is particularly crucial at a time when the property market is volatile.
On the positive, property prices and rentals are booming. On the downside, the construction industry is hit by what some are calling a “tsunami of headwinds”. In the past year, thousands of construction companies have gone bust, leading to major market uncertainty.
Here at DiJones, I’ve been helping seasoned property owners and new investors get through the financial complexities of the current industry dynamics. What happens if you’ve invested in a property and the construction company goes bankrupt before the job finishes? How does this impact tax?
How do you navigate the current rental market – you want to get the best returns but don’t want to feel like you’re “ripping someone off”. And what taxes are involved in this process?
There’s a lot to consider, which is why professional advice is essential.
So, whether you’re a seasoned investor or just starting out, there are several things to consider at this time of year to ensure you stay on top of your financial obligations and maximise your returns.
Here are our top tips for making EOFY as smooth and financially rewarding as possible.
1. Gather your paperwork
The first thing to do is gather all your paperwork from the past financial year. This includes receipts for expenses related to your investment property, such as repairs and maintenance, insurance, property management fees and council rates.
If you have a property manager, they should provide you with a summary of any expenses and a summary of rental income for your EOFY records. You should also keep records of any interest paid on loans related to the property.
Having all your paperwork organised and ready to go will make it easier to prepare your tax return and ensure you claim all the deductions you’re entitled to.
Here are key documents to collect:
- Receipts for expenses related to your investment property.
- Rental income summaries.
- Loan interest statements.
- Council rates notice.
Your property manager can help by providing detailed summaries of expenses and income to ensure your tax calculations are accurate and comprehensive.
2. Consider your tax obligations
As a property investor, you’ll have several tax obligations to consider at the end of the financial year. This includes paying any outstanding tax liabilities, lodging your tax return, and paying the annual land tax on your investment property.
It's important you pay your annual property tax on time to avoid any penalties or interest charges. The Australian Taxation Office (ATO) provides details on how to pay tax and the various payment options available.
Remember that you are obliged to declare all incomes received from rental properties (including any you hold overseas), including short-term private rentals, platform-based rentals and partial or full home rentals - even if you are just renting your property to family or friends.
Of course, if you have sold a property during the financial year, you will also need to take into account any capital gains tax (CGT) that you may be liable for. CGT applies to the profit made from the sale of investment properties and can significantly affect your total taxable income.
Pay attention to the land tax associated with your investments as well. This includes understanding when land tax applies, calculating land tax assessed, and checking if you are eligible for any land tax exemption. For instance, different land tax rates and rules apply in states like Western Australia and South Australia. Keep an eye on the due dates for paying land tax to avoid penalties.
It’s important to stay on top of your tax obligations and ensure you meet all your deadlines to avoid penalties and interest charges. A good business accountant is invaluable here, as they can help with tax advice, tax calculations, and things like asset protection.
Key tax obligations:
- Paying outstanding tax liabilities, including any duties levies and payroll tax.
- Lodge your tax return by the due date using either a paper form or an online form.
- Pay annual land tax on investment property.
- Declare all rental income, including income from short-term rentals, platform-based rentals, and rentals to family or friends.
- Address capital gains tax implications of property sales.
Other considerations include council rates, foreign ownership surcharge for overseas investors, stamp duty and other transfer duty rates, emergency services levy, and potentially, health insurance as this can impact your tax obligations as well.
3. Take deductions for property investors
One of the benefits of investing in property is the ability to claim tax deductions on expenses related to your investment property. This includes expenses such as interest on loans, repairs and maintenance, property management fees, and council rates.
Some deductions can be claimed in full at the end of the financial year. These include interest on loans, rates, repairs and depreciation on assets that cost less than $300. Others, such as capital works, larger depreciation claims and the expenses related to borrowing for the property, will be claimed over several years.
It’s always advisable to discuss your property investment with a specialised tax accountant. Depending on your situation, you might like to have them draw up a depreciation schedule or talk you through the possibility of setting up a pay-as-you-go (PAYG) instalment plan with the tax office.
Whichever way you manage your investment, maximising tax deductions will help to reduce your taxable income and increase your cash flow, so it’s worth taking the time to understand exactly what you can claim and how to do it.
Examples of tax-deductible expenses
Loan interest: This can include mortgages, lines of credit, and other financial products used for property investment.
Repairs and maintenance: Cost of repairing fixtures, fittings, and structural elements that have deteriorated over time.
Pest control: Expense of regular pest control services to maintain the property's condition.
Property management fees: Fees paid to property managers for managing the day-to-day operations of your rental property.
Council rates: Local government charges for services provided to the property, such as waste collection, sewerage, and road maintenance.
Landlord insurance: Premiums paid for insurance policies that protect against damages to the property, loss of rental income, and liability claims from tenants.
Keep in mind that some expenses can be claimed in full in the year they were incurred, including:
- Interest on loans.
- Council rates.
- Repairs and maintenance.
- Insurance premiums.
Others are spread over several years, including:
- Capital works.
- Large depreciation claims.
Also, be aware of land tax, which varies depending on your location.
Maximising tax deductions will help reduce your taxable income and increase your cash flow, so it’s worth taking the time to understand exactly what you can claim and how to do it.
Check out the ATO’s website for further information on the rental expenses you can claim.
4. Review your property portfolio
The end of the financial year is also a good time to review your property portfolio and consider any changes you want to make. This could include selling a property that’s not performing as well as you’d hoped, purchasing a new investment property, or refinancing your loans to take advantage of competitive interest rates.
You may also want to focus on renovations or repairs to your existing investment. Remember that anything done before 30 June can be claimed as a deduction in your tax return.
It’s important to remember that property investment is a long-term game, and it’s essential to have a clear strategy in place. This might involve diversifying your portfolio by investing in different types of properties or in different locations to spread your risk.
Steps for the review
- Assess property portfolio performance: Look at key metrics, including rental yield, occupancy rates and capital growth. Identify any underperforming properties and consider why that’s the case.
- Sell underperforming properties: If some properties aren’t meeting your expectations, why are you holding onto them? Sell them and free up capital that you can reinvest into better opportunities.
- Acquire new investment properties: With the proceeds from selling underperforming properties, you can buy new ones. Look for areas with strong growth potential, favourable rental yields and emerging markets.
- Refinance loans for better interest rates: Interest rates fluctuate, and what was once a competitive rate may no longer be the best deal available. Consider refinancing your loans to take advantage of lower interest rates or improved loan terms.
- Strategic renovations and repairs: Updating kitchens, bathrooms, or adding modern amenities can attract higher-paying tenants and increase rental income. Remember, any work done before June 30 can be claimed as a deduction in your tax return, offering immediate financial benefits.
Common EOFY mistakes to avoid
Mistakes happen. But understanding the potential for mistakes before they’re made can help prevent them. Here are some of the common mistakes made during EOFY:
1. Overlooking deductions
Many property investors fail to claim all eligible tax deductions, resulting in reduced deductions and higher taxable income. This can impact your overall tax payable.
To avoid this, stay organised. Keep all your receipts, invoices, and statements well-organised throughout the year. This will make it easier to prepare your tax return.
2. Missing deadlines
Failing to meet important due dates for tax return lodgement or payments can lead to penalties and interest charges from the Australian Taxation Office.
To keep on track, set reminders for key due dates and plan your EOFY tasks well in advance. This includes gathering necessary paperwork, reviewing your property portfolio, and consulting with a professional advisor.
3. Communication issues
Lack of effective communication with your business accountant or property manager can cause delays and misunderstandings in meeting your tax obligations.
You can overcome this by communicating clearly and regularly with your business accountant and property manager. This keeps everyone on the same page.
Tools you can use
There are a range of tools and resources you can use to gain further insight or assistance at tax time, including:
Loan calculators and comparison tools
These tools can help you assess potential savings by inputting details such as loan amount, interest rate, and loan term. You can:
- Estimate monthly repayments: Understand what your monthly repayments will look like under different loan scenarios. For example, MoneySmart can help you work out how much your mortgage repayments might be.
- Calculate potential savings: Compare various loan options to see where you can save the most money over the loan term. Websites like Canstar and RateCity offer loan comparison tools.
- Interest rate impact: See how changes in interest rates affect your overall repayment amounts, helping you make more informed decisions about refinancing or new loans. For example this calculator with Aussie Home Loans.
Mortgage brokers
Mortgage brokers can also help property investors find the best loan options. They can also:
- Negotiate with lenders on your behalf to secure better interest rates and loan terms.
- Handle the paperwork and communication with lenders.
- Offer personalised advice based on your current situation and future goals, for example a doctor’s borrowing capacity with HECS.
In short
The end of the financial year is an important time for property investors in Australia to review their finances and ensure they’re meeting their tax obligations. By gathering all your paperwork, reviewing your property portfolio, and taking advantage of tax deductions, you can maximise your returns and set yourself up for long-term success.
If you’re not sure where to start, it’s a good idea to speak to a qualified tax accountant, who will provide guidance and advice tailored to your individual circumstances.
Additional resources:
Other buying, selling and investing articles and resources
Guide to property investment success in NSW
Selling a house or apartment in NSW eBook
Buying a house or apartment in NSW eBook
