End of Financial Year (EOFY) is a critical time for property investors in Australia. The right preparation can significantly impact your tax liabilities and returns. From ensuring accurate depreciation claims to reviewing income and expenses, every detail matters.
Key Steps for EOFY Preparation
As a property investor, your EOFY preparation should focus on maximising deductions and ensuring compliance with tax laws. Start by organising all your financial documents, including rental income statements, expense receipts, and loan statements. It's essential to have a detailed record of all transactions related to your investment property.
One common area where investors miss out on deductions is depreciation. Under Division 40 and Division 43 of the ITAA 1997, you can claim depreciation on plant and equipment and capital works. However, the rules changed post-2017, limiting claims on second-hand properties. Make sure your depreciation schedule is up-to-date and reflects these changes.
How This Works in Practice
Consider a scenario where you own a 2015-built 3-bedroom house in Melbourne, purchased for $750,000. Throughout the year, you received $35,000 in rental income and incurred $15,000 in expenses. With a depreciation schedule indicating $12,000 in annual depreciation (combining Division 40 and 43), your taxable income from the property becomes $8,000. At a 37% marginal tax rate, this results in a tax saving of $4,440.
Professional Insight
In our experience, investors often overlook the importance of a professionally prepared depreciation schedule. One thing we frequently see is investors using outdated or incorrect schedules, leading to missed deductions. Another common issue is not factoring in the 2017 changes for second-hand properties, which can lead to over-claiming and potential penalties. What most investors don't realise is that a detailed review of expenses can uncover deductible items they initially missed, such as property management fees or insurances.
When Does the Answer Change?
When Should You Seek Professional Advice?
You should seek professional advice when dealing with complex ownership structures, such as trusts or SMSFs, and when significant renovations or changes have occurred during the year. A Chartered Quantity Surveyor can ensure your depreciation schedule is accurate, while your accountant can help optimise your overall tax position.