Investment property tax checklist

Most investors are likely to agree: the calibre of a property manager is often measured by their record keeping and reporting standards; at least this is true at the end of the financial year. The standard of record keeping and reporting can make or break a tax return. If the records aren’t up to scratch, then providing appropriate and correct information to the tax office can be very difficult.

Quality record management is something that needs to be ongoing; so if you find that it is not up to scratch this year, make sure the bar is reset and your portfolio is being managed appropriately in the new financial year. Record keeping for the end of financial year can be broken down into three distinct areas: income, expenses and depreciation.

Income related to the investment property is probably the simplest area to keep track because there is generally only one revenue stream for each property: rental income. A good property manager will provide a concise summary of rental payments received over the last financial year. Investors should ensure all rental payments have been accounted for and that rental income amounts correspond with bank statements.

Expenses can be somewhat more complex, as it involves a (very) wide variety of items. The list detailed within provides a solid overview of the normal expense items that should be included as part of an investment property claim. It is important to ensure all of the claimable expenses are included as part of the end of year assessment on the property in order to obtain the greatest tax benefit possible.

Depreciation refers to normal ‘wear and tear’ to the asset, capital works and other depreciable items such as fixtures, fittings and appliances. The depreciation schedule is one of the most important documents relating to an investment property. For investors it is best practice to engage a quantity surveyor before the property is leased, in order to have a complete and accurate depreciation schedule in place. If you are seeking to claim depreciation on improvements or construction work, but don’t have receipts, you will need a valuation report on the property.

Property Purchased in 09/10 Financial Year:

If the property was purchased in the latest financial year, the tax office will require details of the property including the purchase date, settlement date and purchase price. An RP Data powered agent can provide you with all these details. Other purchase documentation will include paperwork relating to the mortgage (borrowing and set up costs of the loan, stamp duty on the mortgage and government charges) and the date the property was made available for rent.

The end of financial year is also a timely occasion to update the value of your investment property or portfolio of properties. A computer generated valuation can provide a cost effective valuation of your assets quickly and accurately. Understanding whether your asset has gone up, down or sideways in value can provide a good indication of how much equity is available within your investment portfolio; a great launch pad for future investing in the new financial year. Given that in many areas of Australia property value growth has been strong over the last year property owners may be surprised to see how much more equity they have in their property this year compared to last.

Looking towards the performance of the residential market over the next financial year, the current market and economic indicators are looking less encouraging than they were at the same time last year. Despite the fact that capital city property values have increased by 12.1% over the 12 months to May, the last two months have seen much lower levels of growth recorded at 0.2% and 0.6% respectively. Rents and yields have eased in many areas and leading indicators such as housing finance, consumer confidence and auction clearance rates have all softened in recent times.

In fact, investors returning to the market have been the one positive over recent times with the total value of investor finance up 26% from last year whilst owner occupier commitments are down -19%. We expect slower rates of capital growth over the next year and a likelihood of fewer first time buyers. Considering this, we anticipate that upwards price pressure will build on rental rates. Given this, investors returning to the market may now be well positioned to capitalise on potential growth in rental rates.

Keep in mind, RP Data are not taxation advisers, accountants or financial planners. We recommend you seek independent professional advice and guidance when undertaking your end of financial year activities.

Tim Lawless is the Director of Property Research at RP Data.