End of Financial Year and Your Investment Property

The end of the financial year means it’s time to consider your investment property tax. If your rental property was purchased primarily with depreciation in mind, you are probably prepared for tax time. But if your purchase decision was based on capital growth potential, claimable Taxation Allowances could be a grey area for you. This is often the case if your investment property has evolved from a home you lived in for a period of time. You may wonder – “What can I claim?” “What records should I keep?” and “What does the Federal Budget mean for my taxation?”

Here are some of the questions you might need answering come June 30.

What Can I Claim on My Investment Property?

Every property is different and depending on the age and structure of the property, you will have a different list of ‘claimable items’ attached to it. Keeping accurate records of any possible expenses incurred during the financial year will ensure that you have the necessary paperwork to back up any claim.

Here are some of the expenses you might want to keep a record of throughout the year:

  1. Property management statements/fees
  2. Property insurance (building, contents, landlord’s insurance)
  3. Maintenance expenses incurred through the year
  4. Improvements.
  5. Interest on your loan
  6. Bank fees and charges relating to the property
  7. Council water rates
  8. Council land rates
  9. Body corporate fees
  10. Land tax
  11. Property depreciation (more on this later)
  12. Travel expenses

Your Property Manager should have most of these records to hand for you. For an accurate and up to date list of what records you need to keep next year, and what you can claim this year, talk to your accountant. If you don’t have one, we are happy to make a recommendation.

IMPORTANT CHANGE: From July 1, 2017, you will no longer be able to claim expenses you have incurred travelling to and from your investment property.

What is Property Depreciation?

The Australian Tax Office sees your property from two aspects. One is the land itself, which they consider will appreciate. The other is the Improvements on the property, which they consider will depreciate, meaning they will reduce in value over a period of time.

Improvements are then broken up into two further parts:

  1. The Building (structure).
  2. Plant and Equipment (fittings, fixtures, utilities, and appliances).

Both aspects of a property’s Improvements may be able to be claimed for depreciation, depending on the age of the property. The Building can be depreciated over a 40 year period. Plant and Equipment can be depreciated over the lifetime of the item itself, regardless of the age of the home.

How Do I Make a Depreciation Claim?

Claiming depreciation is not as simple as sending in a list of claims at tax time. To be able to claim depreciation, you need to have a Depreciation Schedule produced for you by a qualified quantity surveyor.

The Depreciation Schedule lists the amount you can claim, based upon the ATO’s rules around the ‘effective life’ of each item. The Quantity Surveyor will need to visit the property, and ‘quantify’ all your Plant and Equipment by documenting it all according to ATO specifications.

It is a good idea to get a Depreciation Report as soon as you settle on a brand new property. Likewise, if you do significant renovations to your investment property, a new Depreciation Schedule at this time will ensure you don’t miss any claimable Taxation Allowances.

IMPORTANT CHANGE: Up to this year, Plant and Equipment Depreciation could, in essence, be ‘carried over’ to a new owner. This has meant if you purchased a near-new or newly renovated property, you have been able to depreciate Plant and Equipment over each item’s lifetime. However, the 2017 Federal Budget has altered this ruling and Plant and Equipment will only be able to be depreciated if you purchased it.

According to the National Tax and Accountants’ Association, existing investments will be grandfathered:

Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

For more detailed information on this change, it’s a good idea to speak to a qualified accountant.

The Right Advice

When it comes to your investment, being able to look beyond the numbers right in front of you and plan ahead is also a great way to get the most out of your investment property. Professional advice specific to your unique needs can potentially save you thousands at tax time, or anytime.

For instance, having access to an efficient and experienced quantity surveyor can ensure your property depreciation is maximised.

Likewise, you may have always done your own tax for your personal income. But having an investment property increases your needs at tax time, and getting an accountant on board can potentially save you money in tax, and ensure you claim correctly.

Another often-overlooked saving can be made with the help of a maintenance schedule. This helps you keep on top of property maintenance and prevents costly repair bills at the wrong time. A maintenance schedule can also dovetail into your other tax needs, to keep maintenance claims fairly consistent year on year.

Lastly, engaging a property consultant who can not only manage your rental income, but can also pre-empt problems, connect you with the best people, and is mindful of your wider personal and financial goals is always invaluable.