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Tax Tips for Property Investors

When property investors gear up for tax season, they’re always seeking what are the best tax tips for property investors. A quick heads-up: while we don’t offer financial advice, we do provide insights on important considerations.

While this may not seem like the most interesting subject, there are many benefits to getting your tax arrangements right. Most significantly, careful management of your tax requirements can help you to minimise your obligations and offset your expenses.

Understandably, most investors only begin thinking about their tax arrangements toward the end of the financial year. However, it is never too early to start improving your financial fitness and preparing for your next return. Here we share our insights on doing this and some top tax tips for property investors.

Tip #1: Collect evidence of your expenses

As a property investor, many of the expenses you incur – like management fees, insurance premiums, and rates – are tax deductible. This means they can be used to offset your income and reduce the amount of tax you need to pay. However, if you want to claim these expenses, you will need to have proof of their payment.

Keeping evidence of your expenses will make it easier to calculate exactly how much you have spent over the year. It will also make any audits easier, as you will be able to justify all of your claims.

A good property manager will help with this, tracking most of your expenses and income, and providing an annual statement. You should also keep receipts for any expenses you have paid for yourself, like insurance premiums and council rates. If you have a mortgage, you will also need to save your statements, as these will show your interest charges.

Tip #2: Organise a depreciation schedule

In addition to direct costs, you may also be able to claim the indirect expense of normal wear and tear. Known as depreciation, this acknowledges that regular use impacts the condition and value of a property’s fixtures and fittings. It also provides an allowance for the steady decline in the condition of a property’s structural components over time.

To claim depreciation, you first need to have a formal schedule prepared, usually by a qualified quantity surveyor. This will identify the depreciable components of your property, and assess their indicative value and effective life expectancy. Based on this, it will also provide a calculation of your allowable deductions for each financial year.

Find out how much you can claim on depreciation with Washington’s Brown calculator.


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Tip #3: Engage an experienced accountant

As the rules are constantly changing, managing your tax requirements yourself can be quite stressful and time-consuming. As such, we strongly recommend working with a qualified and accredited tax professional. In addition to minimising the risk of issues and errors, a good accountant can also help you maximise your deductions.

When choosing an accountant, it is important to look for someone with significant experience supporting property investors. This should mean they have a deep, practical understanding of the relevant tax rules and are across any recent changes. They should also be able to recommend effective ways to optimise your arrangements and increase the viability of your investment.

Tip #4: Consider applying for a PAYG variation

Once you have engaged an accountant, talk to them about the best structure for your tax payments. Specifically, you should ask them whether it would be worth requesting a Pay As You Go (PAYG) withholding variation.

A PAYG variation can be particularly valuable when interest rates are rising, especially if your property is negatively geared. In this situation, a variation would allow your tax refund to be spread out across smaller payments throughout the year. This is done by adjusting the amount of tax your employer withholds, which effectively increases your regular take-home pay.

Having a little extra money in your pocket each pay cycle should make it easier to cover your ongoing costs. However, depending on your situation, switching to PAYG could mean your employer is actually required to withhold more tax. As such, you should seek professional advice about what this variation would mean for you before you apply.

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Tip #5: Prepare for your tax return early

The later you leave it to start preparing for your taxes, the more stressful the process will be. Also, if you are expecting a refund, the sooner you submit your return, the sooner you will receive the money.

With that in mind, it is worth devoting a little time each month to making sure everything is being tracked. You should also book an appointment with your accountant in early July to start preparing to submit your tax return. Alternatively, if you plan to prepare your own return, make sure you set aside time to get this done.

Tip #6: Start thinking about your future plans

Property is a long-term investment and to truly optimise your returns, you need to plan ahead. In particular, you should consider the best timing for significant future expenses, like renovations and repairs. Strategically scheduling these should allow you to offset any expected additional income and minimise your overall tax obligations.

For example, if you have multiple properties, you might plan to renovate one and sell another in the same year. This will allow you to use the cost of renovations to offset capital gains from the sale. Alternatively, you could carry out major repairs to different properties over several years, to maximise the value of the deductions.

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