End of Financial Year Planning for Property Investors
The end of the financial year (EOFY) is fast approaching, and property investors should take this opportunity to optimise their financial position by evaluating their investment strategy and maximising their tax benefits. Advanced planning can significantly impact your returns, from handling minor repairs to acquiring a tax depreciation schedule.
Key Steps for EOFY Planning
1. Review Expenses and Maximise Deductions
EOFY is the perfect time to review all property-related expenses and ensure you are claiming all eligible deductions. These can include:
- Interest on investment loans
- Property management fees
- Maintenance and repairs (completed within the financial year)
- Insurance premiums
- Council rates and body corporate fees
2. Organise Minor Repairs and Maintenance
Minor repairs and maintenance expenses are fully deductible in the financial year they are incurred. Consider addressing:
- Leaking taps, faulty appliances, and electrical issues
- Painting and minor touch-ups
- Landscaping and garden maintenance
- Servicing air conditioners and heating systems
Planning these expenses before June 30 ensures they are included in this year’s tax return rather than being carried forward.
3. Consider Capital Works Deductions
If you’ve recently undertaken significant renovations or structural improvements, it’s essential to understand capital works deductions. Also known as Division 43 deductions, these allow investors to claim a percentage of the construction costs over several years.
Speak with your accountant about structuring these deductions effectively, as they can provide long-term tax savings.
4. Obtain a Tax Depreciation Schedule
One of the most overlooked but valuable tax deductions available to property investors is depreciation. A tax depreciation schedule is a detailed report outlining the depreciation deductions claimable on your property’s structure and assets.
According to BMT Tax Depreciation, regarding how depreciation schedule would benefit clients, residential clients have “an average of over $11,000 in first full financial year deductions”. That’s a significant reduction in taxable income, improving your overall cash flow.
What is Included in a Tax Depreciation Schedule?
A professionally prepared depreciation schedule includes:
- Division 40 (plant and equipment) deductions for assets like carpets, blinds, and appliances
- Division 43 (capital works) deductions for the building structure, including driveways, built-in cupboards, and more
- Pro-rata calculations if the property was purchased mid-year or rented for part of the year
- Both prime cost and diminishing value methods to determine the best depreciation strategy
If you’re unsure whether your property qualifies, use this tax depreciation calculator to estimate potential deductions.
5. Prepay Interest and Expenses
Prepaying interest on your investment loan or other property-related expenses can be an effective tax strategy. If you have surplus funds, consider making additional payments before EOFY to claim the deductions sooner.
6. Assess Rental Income and Capital Gains Tax (CGT) Considerations
EOFY is also a time to review your rental income and any potential capital gains tax implications if you have sold a property in the financial year. If you’re considering selling an investment property, timing the sale strategically can help minimise CGT liability.
7. Consult Your Accountant or Property Manager
EOFY tax planning can be complex, so seeking professional advice is crucial. An experienced accountant or property manager can help you:
- Identify deductible expenses
- Structure capital works deductions
- Ensure compliance with tax regulations
- Plan your strategy for the next financial year
Plan Ahead for Financial Success
Taking the time to prepare for EOFY can significantly impact your tax savings and investment returns.
Get ready for the new financial year by optimising your investment strategy: organise maintenance, obtain a depreciation schedule, and review expenses. Taking these steps will set you up for financial success.
For expert guidance on property management and tax-efficient strategies, contact Iconic Realty Group today.