22 February 2024
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Tax deductions are a crucial part of cash flow management with property investment and they can have a big impact on your bottom line.

EOFY checklist for property investors

John McGrath
27 June 2016

With just a few days to go before the end of the financial year, now is the time for investors to attend to those small repairs and maintenance issues you’ve been putting off. You may want to consider getting them done now so you can claim the cost in this tax year. However to do this you must move quickly as June 30 is only a couple of days away.

Tax deductions are a crucial part of cash flow management with property investment. They’re not a reason to buy – so don’t go purchasing a new property solely because of the depreciation or anything like that, but certainly take your deductions seriously because they can have a big impact on your bottom line and deducting everything you’re allowed to deduct is part of the drill.

I also think the end of the financial year is a great time for investors to take stock of their investment’s performance.

How much income did you receive and how much did you spend on outgoings, including the mortgage? Remember, you can claim a deduction for interest payments only, not principal payments (which is why most investors use interest-only loans).

Next question. Is there new equity in the property that could be used for renovations or a deposit on your next investment? In markets like Sydney where there has been significant annual growth for four years, it’s definitely worth asking your local agent what they think your property is now worth.

Remember, the new equity in a property might not be immediately accessible like your wages and rental income, but it’s still money you’ve earned over the year. The best part is you don’t have to pay income tax on the equity and your bank will give you a big chunk of it (usually 80-90%) in new borrowings if that suits your purpose.

Given it’s that time of year, let’s go over a few common questions about property investment expenses.

What’s the difference between repairs, maintenance and improvements?

1.     A repair is usually partial and restores something to its original state, eg. repairing part of a fence by replacing two palings.

2.     Maintenance is work that prevents deterioration or fixes current deterioration eg. painting your property or oiling the garage door.

3.     An improvement makes something better than it was originally or provides something in a new and more valuable or desirable form. They generally improve the property’s income production or expected life. For example, if you replace a crumbling timber carport with a brick lock-up garage, you are going beyond simply repairing the carport, you are replacing it with an improved feature.

What can I claim as an immediate deduction and what has to be depreciated?

Generally speaking, you can claim an immediate deduction for repairs and maintenance as long as your property is being rented out. With improvements, you can either claim a capital works deduction or depreciation, depending on the type of improvement.  

What if I’ve lost my receipts?

If you paid with a credit card or EFTPOS, the ATO will accept bank statements as proof of purchase.

Can I do my own tax return?

Sure but I don’t recommend it. One of two things will probably happen – at best, you’ll make mistakes or forget some deductions that will result in you losing money; at worst you’ll get fined by the ATO for your errors.

Get yourself a great accountant, declare all your income and enjoy the peace of mind that your tax professional will identify every deduction you qualify for.  And next year, you can claim a deduction for the accounting costs too.

EOFY Check List

Examples of common immediate deductions:

  • Advertising for tenants
  • Accountancy costs
  • Body corporate fees and charges
  • Council rates
  • Water charges
  • Land tax
  • Cleaning
  • Gardening and lawn mowing
  • Pest control
  • Insurance (building, contents, public liability)
  • Interest expenses
  • Property agent's management fees
  • Repairs and maintenance
  • Travel undertaken to inspect the property, to collect the rent or for maintenance.

Examples of common depreciation expenses:

  • Furniture
  • Carpets
  • Curtains.

Examples of common capital works deductions:

  • A building or extension, such as a new room, garage, patio or pergola
  • Alterations – such as removing or adding an internal wall
  • Structural improvements – such as adding a gazebo, carport, sealed driveway or fence.

Source: ATO

Everything you could possibly need to know about deductions and depreciation can be found in the Residential Rental Properties section of the ATO website. 

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