Tax tips for property investors!
With the end of financial year coming up soon, I thought I would provide some general tax strategies for property investors to consider:
1. DOCUMENTATION:
Keep summaries of all your rental income and expenses.file folder draw paper office tax document This is much easier if you have your property manager looking after your property where they pay all expenses and collect all income. They will normally provide a monthly and annual statement. Ensure you have all bank statements showing interest expense. The annual statement should show a summary of interest expense.
A specialist property accountant can assist by ensuring all allowable tax deductions are made.
2. DEPRECIATION:
Only registered quantity surveyors are generally authorised to prepare depreciation schedules. If you are contemplating a renovation a quantity surveyor can produce a scrapping schedule, which puts a value against all items to be thrown away. This value is expensed in the year of expenditure. The new items are then depreciated with a new depreciation schedule.
3. TRAVEL:
All your costs to inspect your investment property are tax deductible, including travel. Ensure you apportion any personal component.
4. INTEREST EXPENSES:
Only interest expenses on borrowed funds used to invest are deductible. It is the purpose of the loan that determines deductibility, not the security used to obtain the loan. A split loan should be considered when a loan is used for both investment and private purposes. If capitalising interest the Tax Office may require evidence of correct documentation and intention. Interest deductibility should be easy but if not properly documented and managed this expense can cause frustration if the ATO decides to review and so the assistance of a specialty property accountant should be used.
5. TRUSTS:
The use of a trust can be a major benefit to property investors by improving asset protection, estate planning and increasing flexibility. If using a trust ensure it has been correctly set up and operated to ensure you do not lose your interest deductibility, which is fully allowable by the ATO if you meet the requirements.