Ten Tax Time Tips For Property Investors

With the 2020 financial year at an end, here's our checklist to help property investors ensure they can maximise their return.

Mike Mortlock, the Managing Director of our Strategic Partner, MCG Quantity Surveyors, shares his top ten tips that investors need to know for the tax season:

Tip #1: Remember that even if you have an older property built prior to 1987 , meaning there’s no claim available on the original structure,  your property will still have some depreciation available if it has had an extension or a renovation. Get in touch with a quantity surveyor for a free estimate of the potential deductions. It costs nothing to check your potential entitlements, but the cost of not doing so can be huge.

Tip #2: If you have bought a property constructed after the 16th of September 1987, you’ll be able to claim deductions on the original structure. Which means that if you have any sort of average taxable income, it is always worthwhile getting a depreciation schedule. If this does not match your situation, there could still be some deductions in any renovations. Always check!

Tip #3: Ensure you know the difference between repairs and maintenance and depreciable assets. Everyone loves to claim repairs and maintenance because it is an immediate deduction, but not everything can be claimed. For example, if you replace a new hot water system with an old one, this is not a repair. It is a new asset that needs to be depreciated over its effective life. If you replace part of the system but leave the item in place, then this is a repair. The ATO have signalled they are looking closely at this, so don’t be caught out.

Tip #4: Keep a record of every addition or improvement you’ve made to your investment property. Your quantity surveyor and or accountant love to have this in an excel format with the date of installation, the name of the asset or improvement and the total cost. This will ensure any depreciation schedules can be updated, or your accountant can claim these items individually.

Tip #5: Be careful occupying your investment property. For example, if you buy a brand new property and decide between tenancies to live in the property for a few weeks, perhaps as a short term holiday home, you will likely wipe out any plant and equipment deductions from that moment onward. 

Tip #6: Remember to advise your accountant of any periods where your investment property wasn’t available for rental. This is typically an issue with holiday homes. If you are occupying the property, you will not be entitled to deductions during that period and the number of days available will need to be divided by 365 to calculate your apportionment. The ATO have flagged this as something they are keeping a close eye on.

Tip #7: Be careful who you listen to when it comes to depreciation advice. We are regularly providing estimates to clients showing solid deductions after their friend, agent, property manager or account said it would not be worthwhile. We will never charge for a free estimate of the potential deduction, and we would never recommend a schedule that was not beneficial to the client.

Tip #8: Remember that while the new depreciation legislation said that you can only claim plant and equipment deductions on brand new properties, you can also claim plant and equipment deductions on older properties, if you install a new asset. For example, you have a house built in 1995, but you added a new dishwasher in April, you’ll be able to claim plant and equipment deductions for the dishwasher this financial year and every subsequent year until the depreciation runs out.

Tip #9: Not all renovations are created equal from a tax point of view. For example, if you are planning a renovation, the difference between choosing carpet or tiles for the living areas is significant. For example, the depreciation rate for carpet under the diminishing method is 25 per cent, whereas for tiles it is 2.5 per cent. So, $3,000 worth of carpet would give you $750 worth of deduction in the first full year, and the tiles only $75.

Tip #10: My final tip is not hold off on organising a depreciation schedule. Our research found that 6.7 per cent of our clients wait so long to organise a schedule that they miss out on deductions, even with a two year back claim. The average loss is $20,537.