As the end of the financial year (EOFY) approaches, property investors have a unique opportunity to fine-tune their financial strategies and maximise their returns. With the right approach, you can not only optimise your tax position but also set a strong foundation for future growth. Here are some of our essential EOFY tips.
1. Conduct a Thorough Property Review
Start by conducting a comprehensive review of your property portfolio. Evaluate each property's performance over the past year, including rental income, occupancy rates, and maintenance costs. This review will help you identify high-performing assets and those that may need attention or restructuring.
2. Maximise Tax Deductions
Property investors can claim a wide range of tax deductions that can significantly reduce taxable income:
Interest on Loans: Interest payments on loans used to purchase, build, or improve your investment properties are tax-deductible.
Property Management Fees: Fees paid to property managers for managing your rental properties can be claimed as deductions.
Strata Levies: Strata property investors can claim a deduction for strata levies to reduce the tax they pay on their rental income. However, the nature of these deductions depends on the purpose of the fees. Administration levies are generally immediately deductible, whereas capital works levies must be depreciated over several years once the repair works are completed.
Maintenance and Repairs: Costs for necessary repairs and maintenance to keep the property in a rentable condition are deductible. However, improvements and renovations are treated differently and must be depreciated over time.
3. Prepay Expenses
Prepaying certain expenses before 30 June can bring forward tax deductions into the current financial year. This includes prepaying property-related costs such as insurance premiums, rates, and even interest on loans (if your lender allows). This strategy can be particularly beneficial if you expect to be in a higher tax bracket this year compared to the next.
4. Write Off Bad Debts
If you have rental income that you have not been able to collect, you may be able to write it off as a bad debt. Document all your efforts to recover the debt and demonstrate that it is unlikely to be recovered. Writing off bad debts can reduce your taxable income, offering some financial relief.
5. Plan for Capital Gains Tax (CGT)
If you've sold any properties (other than your Principal Place of Residence) during the financial year, you'll need to account for Capital Gains Tax. Consider any available exemptions or discounts, such as the 50% discount for assets held longer than 12 months. If you have any underperforming properties, selling them to realise a capital loss can offset your gains and reduce your CGT liability.
6. Utilise Tax-Effective Structures
Review the structure of your property investments. Holding properties in tax-effective structures such as trusts or self-managed superannuation funds (SMSFs) can provide significant tax advantages. Remember any transfer is likely to trigger stamp duty so this must be factored in. Consult with a financial advisor to determine the best structure for your situation.
7. Claim Depreciation Deductions
Depreciation is one of the most valuable yet underutilised tax benefits for property investors. Engage a qualified quantity surveyor to prepare a depreciation schedule, which will outline all available deductions for the depreciation of the building and its fixtures and fittings. This can result in substantial tax savings.
8. Plan for the Future
EOFY is also a good time to plan for the year ahead. Set clear financial goals for your property investments, whether it's increasing rental income, expanding your portfolio, or improving property management practices. Create a budget that includes provisions for unexpected expenses and potential investments.
The end of the financial year is an excellent checkpoint for property owners and investors to review, strategise, and optimise their financial positions. By leveraging tax deductions, prepaying expenses, and planning for the future, you can maximise your returns and set the stage for continued success.
Professional and qualified advice is invaluable when it comes to property investment and taxation. Equally, a well experienced strata manager can guide owners corporations not only to protect, but enhance the value of their community. Contact Compass Strata today and benefit from our expertise in strata and community management.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute professional advice. It does not take into account your specific objectives, financial situation, or individual needs. Before acting on any information contained herein, you should consider whether it is appropriate for your circumstances and seek professional advice tailored to your personal situation.
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