Two-thirds of Australia’s 1.8 million landlords report a tax loss on their properties – those losses totalling more than $13 billion, according to Australian Taxation Office data. In the lead-up to the end of the financial year, it’s worth checking you are getting your full entitlements from your investment properties.
Any investors who expect to earn less next year should investigate what they can prepay before June 30. The biggest is likely to be 12 months’ interest on the mortgage.
And if you don’t have a depreciation schedule, organise one now and pay for it before June 30. Anyone who has a house built after July 18, 1985, needs one to maximise their deductions. They are also worthwhile for older houses that have been renovated, as explained later.
Organise repairs and, as long as these cost less than $1000 and you trust the tradesman, pay for them before June 30 to score a deduction this tax year even if they won’t be completed until later.
It’s important to distinguish between repairs and maintenance and improvements, because the latter do not generate immediate deductions, although they can be depreciated over time. The ATO provides a good guide to help you understand the differences (see www.ato.gov.au/Individuals/Ind/Rental-properties—claiming-repairs-and-maintenance-expenses).
Other expenses which can be claimed include paying a gardener to maintain the outdoor area and administration costs.
Even if prepayments are not on your agenda, the end of the tax year is a good time to take stock and make sure you are claiming everything you can.
If your investment property was built before 1985, you may not have bothered with a depreciation schedule, but it’s likely that a home 30-plus years old has undergone some improvements, which would be depreciable. And even if that is not the case, Tyron Hyde, director of quantity surveyor Washington Brown, points out your property’s purchase price includes land, building and plant and equipment (fixtures and fittings) and firms like his can help you break down those categories. ‘In about 99% of the cases we can find enough plant and equipment items to justify the expense of engaging our firm,’ he says.
Landlords planning kitchen or bathroom renovations on properties built after 1985 should engage a quantity surveyor before they demolish, says Hyde, so the residual value can be assessed. For example, a rental property with a 20-year-old $10,000 kitchen attracts an immediate deduction of around $5000 when it’s demolished. If you have been missing out on building and depreciation claims, the good news is that you can obtain a schedule and claim up to the previous two years. For the average cost of around $660, which is itself tax deductible, it’s well worthwhile.
Some expenses need to be claimed over a longer period, including valuation fees, lender’s mortgage insurance and loan establishment fees, which can be claimed over a period of five years. The end of the financial year is also a good time to consider whether you should be claiming your landlord deductions on a regular basis rather than annually, especially if cash flow is tight. To do this you need to fill out a PAYG Witholding Variation Application, which you will find on the ATO site, and have less tax taken out of each pay packet.
Get expert endorsement
Before forming a long-term relationship with a financial institution, it is important to look at all the options.
Take time to shop around for a financial partner that meets your needs and give serious consideration to ‘member-owned’ organisations, such as building societies, credit unions and mutual banks.
A valuable part of your research would include looking for expert endorsement on financial products. Experts within the financial services industry, such as Canstar and Money magazine, offer independent ratings and awards that give an indication of the best value products in the market.
Member-owned organisations rank highly in these comparisons, as they often have higher interest rates on investments, lower interest rates on loans and fewer fees and charges. A little time spent researching and shopping around could save you thousands.