Tax time can be a challenge. The ATO’s aim is to collect as much tax as possible. The aim of most Australian taxpayers is to pay only as much as they have to. Navigating the rules is especially difficult for individuals and sole traders that don’t have teams of tax specialists on hand to wade through the requirements. For property investors, the complexities can be quite a burden. 41.9% of total revenue collected in 2020 ($231.2b) was collected from individual taxpayers, excluding property taxes. This is 2.4 times more than businesses paid.
Queensland’s Nicole Kelly is adept at weaving through the tax mire. She is a CPA, business consultant and taxation specialist and the co-founder of the tax software, TaxTank. She understands that most property investors have a grasp of the tax time basics, including negative gearing although incredibly, in a survey by online lender, State Custodians, 61% of respondents were not aware that mortgage interest payments on an investment property are tax deductible.
Here are some of her special tax tips that should be very useful:
Provide the ATO with all the tiny details
Unless the ATO has all the information of your income and expenses it’s impossible to correctly determine your constitutional economic responsibility. In other words, you won’t be able to get your highest legal refund at the end of the financial year.
Be vigilant about keeping your receipts and documents safely together
The ATO reports that the number one cause leading to the dis-allowance of rental property claims continues to be where taxpayers are unable to produce receipts or other documentation to support a claim
Know your real-time tax position all year round
The truth is, if you want to beat the ATO at their own game, tax can’t be a once-a-year event. If you use software that provides you with live bank feeds and interactive reports that show your tax position on a daily basis, you can make important decisions, including tax minimising decisions, all year.
Know all the deductions you can make.
Property investors can claim many more deductions on their tax than they often realise. Here’s a list of the most common deductions property investors can claim:
- Land tax
- Borrowing expenses, including LMI, over 5 years
- Mortgage exit fees
- Interest payments and annual fees
- Property advertising fees
- Real estate management fees
- Landlord insurance
- Council and water rates
- Software to manage your properties & tax
- Cleaning at the end of a tenancy
- Gardening and maintenance fees
- Building and asset depreciation (as per your schedule)
But don’t forget working from home deductions – home office running expenses for the hours you spent managing your portfolio at home, internet and phone costs and computer depreciation. Just remember that deduction claims must be apportioned to how much use is for an income-producing activity.
Pre-pay expenses
If you are expecting to have a lower income next year for any reason, you can reduce your higher income in the current financial year by prepaying some expenses up to 12 months in advance. For property investors the big ticket item is interest on loans, however you can also prepay next year’s insurance premiums, body corporate fees, council rates or even bring forward other costs that would normally come up after 30 June like income protection insurance premiums and self-education expenses. Some service providers even offer a discount for prepaying.
Brisbane’s Tammie Van Diest is a fan of TaxTank, which she heard about from her accountant. She bought her first property at the age of eighteen and now at forty-nine, she owns seven, spread across Australia. Her tax returns, as you can imagine, are especially complex.
“It had always been the same each year. Come July 1 it was a mad scramble trying to find faded receipts, asking property managers to resend through past statements and invoices, manually going through bank statements and itemising income and expenses and things like realising that you hadn’t paid water bills for the past three quarters on one of the properties because they changed to email communications, which were going to spam, so you received hefty late interest fees…the list goes on,” she explains.
“The TaxTank software streamlined all of this, meaning no July 1 scramble. Everything is done throughout the year with so little hands-on time from me needed. It’s literally about 10 minutes a week to allocate transactions from live bank feeds and I’m literally on top of my paperwork. No more spreadsheets or tax time stress.”
“But it’s not just about tax. I like that I can see the tax and cash position for each property, loans, equity and even growth forecasts to help me understand how my properties are performing now and into the future.”
