How property investors can make the most of tax time

It’s coming up to that time of year again, when property investors start hurriedly gathering their papers so accountants can complete their tax returns.

But many overlook that one thing that could provide them with the biggest reward – renegotiating their loan or switching to a better one.

“Investment properties are generally deductible and negatively geared, so a lot of people think the rate of interest they’re paying doesn’t really matter, and they set and forget,” says Angus Gilfillan, the chief executive and co-founder of mortgage brokers Finspo. “But that rate can make a big difference.

“Over the past five years, banks have repriced existing investment loans materially, while staying competitive on rates for new customers, so there’s now the opportunity to make much bigger savings. Investors should really use this tax time to review their lending and the rate they’re paying and take advantage of being in such a competitive market.”

The difference between a new and an existing investment loan is now 0.5 per cent for variable rates which, on a $500,000 investment loan, represents $2500 a year, Gilfillan says.

This gap is more pronounced than for owner-occupier variable rates, at 0.43 per cent.

“Refinancing, as a result, could help borrowers save thousands and pay off the investment loan a whole lot faster, or help in other ways to create more wealth,” he says.

H&R Block tax consultant Mark Chapman believes now is also the perfect time to gather all receipts and invoices relating to investment properties and calculate the proportions of expenses to hand over to the tax agent or accountant.

If you lost a tenant during COVID, you should also have proof that your property was available for rent at that time.

“You’ll still have incurred fixed expenses through that period and you’ll want to claim a deduction for them,” he says.

“Other deductions are for mortgage interest, prepaid expenses – like insurance – that might straddle the tax year but which you can still claim for this year, and a proportion of your phone bill or internet costs if you use them as part of managing your property. Also, make sure any repairs and maintenance have been done by June 30 … to lock in a tax deduction.”

A quantity surveyor can help work out any depreciation claims you are entitled to. It’s a complex affair, and many investors miss out on potential savings by not doing so.

“All improvements after settlement will be included as depreciable items on the tax depreciation schedule,” says Liam Hannah, director of quantity surveying firm Property Returns.

“And if in strata, any special levies invoices should be added to the claim, too.”

He says accelerated depreciation rules further mean that any item bought for less than $300 can be immediately deducted at 100 per cent, while items between $300 and $1000 can go into a low-value pool and claimed at 18.75 per cent of the item’s cost in the current year.

So, tax time should be looked at as an opportunity to improve your financial standing and achieve your goals more quickly, rather than simply as, perhaps … too taxing.