Five Tax Time Mistakes Perth Investors Keep Making (And How to Avoid Them)
End of financial year has a way of creeping up, and for property investors it often arrives before everything is in order. Most of the mistakes landlords make at tax time are entirely avoidable - and they tend to repeat year after year.
Here are five of the most common ones.
1. Confusing Repairs with Improvements
Repairs and maintenance are generally deductible in the year they are incurred. Improvements - work that adds value or extends the life of the property - are treated as capital expenditure and depreciated over time instead.
Replacing a broken tap is a repair. Replacing the entire tapware suite is an improvement. The distinction sounds simple, but it catches investors out regularly. Keep clear records of what work was done and why throughout the year rather than reconstructing it in June.
2. Not Having a Depreciation Schedule
Depreciation allows you to claim the decline in value of the building and its assets - appliances, carpet, blinds, hot water systems - as a tax deduction each year. On a modern property this can amount to thousands of dollars annually without any money leaving your pocket.
A depreciation schedule is a one-off cost prepared by a quantity surveyor, and it typically pays for itself quickly. If you have never had one done, it is worth asking your accountant whether it makes sense for your property.
3. Missing Claimable Property Management Fees
Property management fees are fully tax deductible, and so are leasing fees, inspection fees, lease renewal fees, and advertising costs. Where investors come unstuck is in not having a clear record of what has been charged across the year.
Your property manager should provide an EOFY statement with an itemised breakdown of income and expenses - exactly what your accountant needs. If you are not receiving one, that is worth raising.
4. Overlooking Loan Interest and Borrowing Costs
Loan interest is one of the most significant deductions available to landlords, and it is frequently understated. If your investment loan is mixed with a personal redraw facility, only the portion relating to the investment is deductible - and investors who have accessed equity for personal use without separating the loan can find themselves in a complicated position.
Borrowing costs from setting up the loan may also be deductible, either immediately or spread over five years. Check with your accountant, particularly if the property was purchased in the last few years.
5. Treating Every Year the Same
Investment property tax is not static. Rental income, expenses, and your broader financial position all shift from year to year. The investors who get the most from their property at tax time are the ones having a conversation with their accountant before June 30, not after - while there is still time to act on what they find.
A Note on Professional Advice
The information in this post is general in nature and is not a substitute for advice from a qualified accountant or financial advisor who understands your individual circumstances. If you are not already working with one, finding the right person before EOFY is time well spent.
SOCO Realty has been managing Perth investment properties since 2006. If you have questions about your EOFY statement or what your property management records include, contact our team.