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5 tax tips to max cashback on your property investment

With tax season knocking at the door and the economy sailing into rougher waters, here are strategic ways property investors can maximise their property tax returns while raising the overall value of their investments.

5 tax tips to max cashback on your property investment
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Managing director of MCG Quantity Surveyors Mike Mortlock stated that with interest rates rising, construction costs surging, and increasing cost-of-living pressures becoming a heavier hip-pocket burden, investors should take steps to “get savvy” about the status of their financials. 

“Our research shows investors are becoming more prudent about their financial arrangements, and their level of engagement is only set to ramp up as fiscal pressures force us all to look at ways of maximising our bank balances,” he stated. 

He also urged property investors to take a sooner-rather-than-later approach when dealing with their real estate investments in these “tough economic times”.

“If property investors were intending to carry out some of these actions on their investment, but hadn’t got around to doing them yet, my suggestion is that they tackle them immediately,” the tax expert stated. 

“Making these easy moves now will maximise your tax return – a much-needed boost given challenges around the rising cost of living,” Mr Mortlock added. 

Below are five ways investors can boost the tax return on their properties while increasing their overall value: 

1. Tackle small repairs and maintenance 

Mr Mortlock stated that tackling niggling repairs and maintenance means immediate money in investors’ pockets, as works carried out now are instantly claimable. 

He explained that most investors put off smaller upkeep works as they focus more on the bigger renovation projects. 

Citing MCG Quantity Surveyors’ latest 1000 Assets ReportMr Mortlock said an estimated 30 per cent of all investment properties undergo renovation work, with the cost averaging around $25,000 to $30,000 per property. 

But the expert said that even small works could deliver a benefit. “I’m talking about those minor works you’ve been putting off. Any repair – no matter how small – allows you to claim the cost of materials used to tackle it,” he said.

Additionally, Mr Mortlock explained that labour costs can also be claimed if you work with a contractor. 

“Works can include landscaping – something that landlords may be able to carry out themselves with the tenant’s permission. You also get to claim for costs incurred on pruning, cleaning, gardening and lawn mowing,” he said.

He reiterated his call for investors to take on these works immediately. “Now is the time to act because any costs you incur in June are 100 per cent tax deductable in July. Miss this window of opportunity and you’ll be waiting another year to get the benefit,” he explained.

2. Prepay your loan interest

Investors who have the means to pay their annual interest charges in advance should consider doing so. 

“Aussies have managed to boost their saving throughout the pandemic with increases in their offset accounts and savings,” he explained. 

“I’d suggest devoting some of that treasure chest toward pre-paying your interest bill for the coming year. The sum you pay is immediately claimable against your 2020-21 tax return,” the expert advised. 

He said that while the advance payments won’t insulate your pockets from the looming rate hikes, they will give you a leg up come tax time. 

“Interest rate rises seem inevitable this year. However, if you have the means, prepaying a bigger chunk now will give you room to deal with increases as the year progresses, while boosting your tax return immediately,” he said.

Mr Mortlock also advised investors who also have redrawn equity from their investment property mortgage to ensure that the funds were used for investment purposes to avoid getting in trouble with the Australian Taxation Office (ATO). 

3. Secure a depreciation schedule

If you haven’t already organised a depreciation schedule, Mr Mortlock suggests you pick up your phone and schedule one today. 

He explained that depreciation schedules prepared by suitably qualified professionals give hugely advantageous tax-deductible depreciation to your property’s fixtures, fittings and finishes.

And while there are still investors who are still not well versed with this cashback-boosting strategy, he said that more are becoming aware of this tax advantage. 

“Fortunately, investors are becoming more aware of their advantages. Our most recent 1000 Assets Report revealed the amount of time between settlement and ordering a schedule fell to around eight months in 2022 – more than half the time it was in 2016,” he revealed. 

Some investors might frown at the hefty depreciation schedule costs that could go up to hundreds of dollars, but Mr Mortlock said that it could “deliver thousands back to the landlords”, making it a worthwhile investment. 

4. Purchase items for your property 

Mr Mortlock said that while having items fully installed before the end of the year might be a challenge, landlords should instead focus on buying freestanding items that contribute to the rent return.

He advised buying items that can be quickly installed, such as light fittings, rugs, tiles and carpet. Other items he listed included pot plants and other garden ornaments, freestanding lamps, and appliances such as a new chest freezer.  

“All things that will be used by the tenant, help boost the rent and can be deductible,” he stated. 

For items worth $300 or less, investors can claim the total cost on the tax return. 

For those with more money to spend (and if time permits), he advised considering installing equipment priced under $1,000. “[Deduction] rules make this type of outlay late in the financial year extremely lucrative in terms of tax,” he explained. 

5. Work with your advisers

Lastly, Mr Mortlock advised investors to check in with their respective property advisers and to do it before June ends. 

Mr Mortlock said property managers keep a running tally of deductible repairs and upgrades as part of their annual rental statement, and this will be required reading for your accountant.

“In addition, your property manager will provide advice on works they can coordinate in the coming week or so to help improve your deductions by year’s end,” he said. 

The expert also reminded investors that advisers’ fees are tax-deductible and to include professional costs as part of their tax return this financial year.

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