How to maximise your tax deductions and minimise your holding costs

By Lindy Lear | 08 Oct 2013
Each month, Lindy Lear shares a fundamental tip or two to help budding investors build the best property portfolio they can
It’s tax time again! Whether you are a new investor doing your tax for the first time or a savvy investor with multiple properties, read on for a few tips to maximise your tax deductions and to minimise your holding costs.
Organising the paperwork
My property mentor Ian Hosking Richards taught me a very good lesson when I was a new investor. He taught me how to get organised right at the beginning. When I bought my first property, he presented me with a property folder with dividers to file all my rental statements, bank statements, tax invoices, council rates, body corporate/strata levies, insurance invoices, depreciation reports, settlement statements in an organised system. I now proudly have a shelf with folders for each of my properties and tax time is easy. I transfer the paper information to an easy excel spreadsheet report to send to my accountant who loves me because I am so organised and I get my tax cheque back much more quickly.
DIY tax vs using an accountant
Your property investment is a business. You can claim all the expenses of running your business against your property income. The trick is to make sure you keep good records and to know what you can claim. Organising all your statements and invoices for each property and finding a good accountant who has experience with property investing claims is a must. Accountants can take all the hard work out of making claims, they can maximise your deductions and their fees are worth every penny. A DIY tax claim may be a false economy in the long run.
Tax depreciation reports
One area where you need a specialist report to maximise your tax claims is depreciation (your non-cash deductions). A depreciation report prepared by an accountant may not be accepted by the tax department and may not include maximum deductions. Your building and its fixtures and fittings are all depreciable items as part of your property business. This can significantly increase your tax claim and thus give you a bigger refund and should not be forgotten. For a cost of only $300 - $400 at the time of purchase, a Tax Depreciation Schedule prepared by a Quantity Surveyor will give you thousands of dollars of tax deductions for up to 40 years if the property is new. As an example, on my portfolio I was able to claim over $52,000 off the taxable income in depreciation alone.
Claiming a tax variation
This would be the second best lesson Ian taught me as a new investor – how to make a claim to the Tax Department for a tax variation and receive the anticipated tax refund in advance. Rather than wait until the end of the financial year and claim a lump sum deduction, I claim my expenses in advance and the Tax Department varies my pay so I pay less tax and receive more cash in my pay. So, for example, instead of receiving a $10,000 refund in a lump sum, you would receive $200 a week more in your pay. It is better to have the cash in your pocket than to wait for 12 months.
Minimising the holding costs
This extra cash in your pay is a bonus that minimises your holding costs for your property throughout the year. The $200 a week does not buy a new pair of shoes or a new electronic device, it goes into your “buffer” investment account so when the rates, body corporate / strata, or property expenses are due you have the tax man’s money to pay for them. You do not have to use your own money from your normal income and be out of pocket to fund your investment portfolio if you have chosen the right property. The tenant and the taxman (via the tax refund paid in advance) are paying for your property costs.
Property investing is a business
I have found that running your property investments like a business is what will allow you to grow your portfolio more quickly. By understanding how to maximise your tax deductions you can cashflow your properties more easily and minimise your holding costs. It’s just like any business, the more cashflow the healthier your business becomes as it grows. If you have any questions or need help with any of the above please call or email me and I would be happy to share my property tax spreadsheet with you.

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