Time for investors to be tax-wise

JUNE can be a taxing time for people rushing to get their finances sorted before the end of the financial year.

deductions graphic

JUNE can be a taxing time for people rushing to get their finances sorted before the end of the financial year.

However, for property investors it can sow the seeds for a welcome windfall.

Making a few changes now, or spending a bit of money on a property, can deliver a handy tax refund as early as next month.

Investors have just three weeks to get cracking, so where do you start?

Carolyn Majda, general manager at landlord insurance provider Terri Scheer Insurance, says step one is visiting the Australian Taxation Office's website (ato.gov.au).

"It contains user-friendly information to assist property investors with their tax returns," she says.

"However, it is important to remember that landlords often come under close scrutiny from the ATO ... It is therefore a good idea for landlords to speak with their accountants to maximise their tax returns and confirm what they can and can't claim."

Insurance premiums and maintenance work are key expenses that can be claimed, Majda says. "Some landlord insurance policies may even provide limited cover for ATO tax audits relating to investment properties."

Author, university lecturer and real estate investor Peter Koulizos also says it is important to "find yourself a decent accountant who knows property matters".

"You would assume that they know the tax laws far better than you do, so they can claim more stuff," he says.

"Their job is to hopefully minimise your tax."

Koulizos says doing maintenance work this month can be a popular strategy for investors, but people need to remember that repairs and maintenance are different tax-wise than improvements.

"It's one thing to fix up a pergola - it's quite a different thing to build a pergola," he says. "The expenses of one can be attributed in one year, the other has to be depreciated over several years."Prepaying big expenses such as loan interest is a tactic, but Koulizos is not a fan: "As someone who has invested in property for years, I'm in no rush to spend money I don't have to".

A potential trap for investors in June is on the timing of capital gains and losses. For tax reasons, the date for buying or selling a property is when the contract is signed, not at settlement, Koulizos says.

Delaying a sale by just one day, from June 30 to July 1, can push back a capital gains tax bill by an entire year, he says.

EPS Property Search director Patrick Bright says many investors fail to claim what they are entitled to from the ATO simply because they are unaware of it.

"In order to maximise the return on your investment property, it is important to minimise the amount of tax you pay by claiming every legitimate deduction," he says.

Bright says depreciation is a great tax-refund earner for property investors because you don't actually pay money for it. Buildings and fixtures and fittings can be depreciated, he says. However, the land component of a property investment cannot.

"For a few hundred dollars a quantity surveyor will draw up a depreciation schedule for all the furniture, fixtures and fittings and any renovations to your property.

"A quantity surveyor will also give advice on what items you can write off in less than five years and how to maximise your tax deductions for depreciation. You can also claim a deduction for their professional fees."

Bright says one of the challenges of affording an investment property is waiting to the end of the financial year before receiving a refund but those on tight budgets can apply to have their tax varied.

"The ATO will allow your employer to adjust the tax they take out of your wages to take into account the cash flow shortfall from your investment property."