What property investors need to do now to prepare for tax time

It’s almost the end of the financial year, and residential investors are frantically making last-minute preparations for tax time to put their best foot forward.

“When it comes to maximising the return on an investment it’s about making sure you claim as much as you possibly can to help offset personal income tax,” says Simon Dahdah, general manager and co-principal of McGrath Surry Hills, Sydney.

“It’s also the right time to improve assets as well this financial year, to make sure their value will grow in the future.”

Top tips include precisely evaluating rental income received throughout the financial year, including rent payments and any additional income streams, and assessing deductions, like maintenance costs, property management fees, interest on mortgage repayments and insurance premiums.

Another vital tool in the game plan is preparing a depreciation report – something that 75 per cent of investors fail to do, according to property investment strategist Lloyd Edge, the managing director of Aus Property Professionals.

“That’s something that can start providing benefits from this financial year rather than waiting for subsequent years,” he says. “That report will include depreciation on any renovations you’ve done, too.

“And if you’re thinking of buying another investment property, then buy it as soon as possible as, if you can sign the contract before the end of the month, there are benefits now instead of in the next financial year.”

There are also other, less obvious, deductions that can be claimed. Mark Chapman, director of tax communications at H&R Block, says that if you’ve prepaid an item of expenditure before the end of July that is wholly or partly related to the next year, you can still claim for the full amount in the 2023-24 return.

“This is particularly useful with expenses that straddle the tax year, such as insurance policies or subscriptions,” he says. “In addition, if you use your home phone, mobile, computer or internet services as part of the management of your investment property, you can claim an appropriate proportion as a tax deduction.

“There are lots of other things you can claim, too, some more obscure than others. That might be advertising for tenants, including letting agents’ costs, cleaning at the end of a tenancy, agents’ fees, gardening and lawn mowing, bookkeeping fees, bank or solicitor fees and credit checks and pest control.”

It’s also vital to avoid some of the most common mistakes, says Chapman, such as claiming excessive interest and deductions for investment properties that weren’t genuinely available for rent, for instance, when they were being loaned to family or friends.

As with everything else, it’s important to have a good accountant or tax agent to give you tax advice and to keep your papers in order to make sure that, for instance, you can show your property was up for rent even at times when it might have been vacant.

“Sometimes an accountant may be able to point out where you can claim more money, or let you know if you’ve apportioned expenditure wrongly,” says Dahdah. “It’s very important at a time like this to have the best advice.”