Preparing for Tax Time as a Property Investor

With the end of the financial year behind us, it's time for property investors to start preparing for tax time. Regardless of the number of rental properties you own, the key to a smooth EOFY process is organisation. Proactive planning can minimize the time your accountant needs to spend on paperwork and maximize your potential tax benefits. It’s also crucial to understand what you can—and can’t—claim as a rental provider.

Virginia Sier, Head of Property Management at Woodards Manningham, emphasizes the importance of year-round tax preparation, not just at tax time, and consulting your trusted financial advisor is essential.

“June 30 sneaks up on us, but tax is historical, so it’s vital to always think about what you can do now to benefit in the future,” she says. “Once July 1 arrives, you have to wait a long time if you’re hoping to claim additional expenses like maintenance or refreshing your investment.

“By partnering with your accountant throughout the year, you can reduce the stress of tax season and ensure you’re well-prepared to navigate the process smoothly. While most investors know to claim expenses like property management fees, rates, home loan interest, and insurance, many overlook the importance of depreciation. We can assist our clients in arranging these Depreciation Reports through a Quantity Surveyor”, Virginia explains.

Depreciation is essentially how much the ATO says an asset decreases in value over time. Investors can claim depreciation in two ways:

• Capital Works Allowance (Division 43): This covers the value of a building’s structure, spread over a 40-year period.
• Plant and Equipment Depreciation (Division 40): This includes removable fixtures and fittings with a limited lifespan, with the ATO providing a list of effective lifespans per item.

Tax depreciation schedules can be obtained at any time, but it’s best practice for rental providers to secure the schedule when a property becomes an investment.

“You can still get a report done after the property has been rented out for a number of years, but you’ll have less depreciation than you would have initially,” Virginia adds.

A common misconception is that spending $1,000 and claiming $1,000 will result in getting $1,000 back in cash. In reality, legitimate claims against a rental property reduce the taxable income generated by the property, thus lowering your tax obligation.

Depreciation can significantly reduce your taxable income and is a non-cash claim, meaning the taxpayer isn’t out of pocket. This can greatly benefit your tax position year after year.

When it comes to tax depreciation, Virginia advises rental providers to discuss the big picture with their accountant, as both timing and a trusted professional team are essential for successful property investing.

Woodards Manningham provides all Rental Providers with a comprehensive end-of-financial-year statement detailing all monthly and total income and expenditure to assist with tax time. Our Property Managers can also connect you with a qualified quantity surveyor to help obtain a depreciation schedule if needed.

In compiling this article, Woodards relied on information from several external sources. This article is for general information only and should not be considered legal or financial advice. Despite high standards in preparing the information, analysis, views, and projections presented, Woodards does not accept any responsibility or liability for any loss or damage resulting from any use of or reliance on this article. If you have financial concerns, we encourage you to consult with a financial advisor.