Maximising Your Tax Return – The Five Tips for Property Business Tax
Published 9:15 pm 19 Nov 2019
As the end of each financial year approaches, you have to prepare to lodge your tax return. These tax tips from DG Institute founder Dominique Grubisa will help.
None of us looks forward to tax time. But unfortunately, it’s a necessary evil and something that you’ll need to prepare for when operating a property business.
The good news is that there are many ways that you can legally save on your taxes to get a better tax refund. That means you’ll have more money in your pocket to put into your property business.
In this article, DG Institute founder Dominique Grubisa looks at how to maximise tax returns. But first, let’s look at why it’s a good idea to work with a professional when working out your tax bill.
Why You Need a Professional to Look at Your Taxes?
Let’s face it – running a property business isn’t easy work. Once you have a few properties under your belt, you’ll start to notice that you have less time to focus on the admin. That often leads to business owners slipping up with bookkeeping and other accounting tasks.
When tax time comes around, they’re not prepared to lodge their business tax return.
Holes have formed in your financial bucket and there are all sorts of expenses that you fail to claim on your tax.
One of our clients offers a perfect example. Before they started working with DG Institute, they thought they had a good handle on their tax issues.
However, our work showed that they paid over $1 million more tax than they should.
Can you imagine having a hole in your financial bucket that allows $1 million to seep through?
These sorts of problems stem from the fact that many business owners haven’t created a suitable tax structure. That means they’re not making the claims that they’re eligible to make.
And it’s not just multi-million-dollar businesses that have this problem. Small business owners and regular people can often save five of six-figure sums on their taxes.
When you think about it like that, the reason for working with a tax professional becomes clear:
You want to make sure that the Australian Taxation Office (ATO) only takes its fair share.
A professional tax advisor can help you to plug the holes in your bucket so that you save thousands, or even millions, of dollars.
But let’s say that you want to take action right now. What can you do to prepare for lodging your tax returns today?
Tip #1 – Appreciate Depreciation
It’s likely that you’ve conducted some building work over the course of the year. Perhaps you’ve completed a renovation or you’ve conducted some repairs. Or, you may just have new assets that you’ve introduced into your property.
In many cases, you can claim the cost of these improvements on your tax bill.
For example, you can make claims for renovations and repairs under Division 43. It’s a good idea to have a quantity surveyor examine your changes so they can help you to claim a deduction for any relevant work.
These claims even extend to things like stoves and kitchen countertops. Those are assets that will depreciate in value over time, which is something that you can claim for.
And you may even be able to go further than that. In an article for the Australian Financial Review, Duncan Hughes writes about some of the claims that investors can make:
“Tennis court nets, umpire chairs, and artificial grass are among the ingenious tax claims that…property investors are claiming on their holiday houses to lower costs and boost returns.”
Again, these are all things that a tenant will use, which can mean they’re work-related assets for you as an investor.
The point here is that there are likely several costs related to running your property that you’re not claiming for. Think of the assets you install into the property as work-related expenses. Making a full set of claims for them can save you thousands of dollars.
Tip #2 – Claim the Cost of Stationery and Other External Costs
Beyond the direct costs of maintaining a property, you also have external costs related to your property business.
For example, most investors haven’t moved to a completely paperless system. You’re signing contracts and dealing with other manual tasks. All of these things require paper and stationery, the costs of which can add up over time.
Again, this is all the stuff that you can make claims for.
The same goes for any work-related telephone services that you maintain. You can even claim the costs of postage if you’re mailing documents out to tenants and contractors.
Travel expenses are slightly more contentious. However, there’s one area where you can definitely claim for them…
Tip #3 – Claim for Self-Education
All smart investors spend time and money on continually educating themselves. You want to learn about new strategies and you need to understand the market that you’re working in.
This education generates a cost…but it’s also a work-related cost.
That means there are many self-education tax deductions that you can make.
You have the obvious stuff, such as the cost of seminars and any course material that you need. However, you can even lump the cost of travel into those claims. After all, it’s work-related travel that’s going to help you to become better at what you do.
That’s the key thing to remember here. You’re spending money on those things so that you can improve your business. That means you can claim tax deductions for them as you would for any other business asset.
Tip #4 – Claim the Interest on Interest-Only Loans
A lot of investors use interest-only loans to provide them with a more affordable route into the property market. However, there are also tax benefits related to these types of loans.
The ATO website outlines them:
“If you take out a loan to purchase a rental property, you can claim the interest charged on that loan, or a portion of the interest, as a deduction. However, the property must be rented, or available for rental, in the income year for which you claim a deduction.”
There is a caveat to this strategy though. If you decide to use the property personally, you cannot claim the loan’s interest in your tax returns. That means you can’t make claims on a principal place of residence or any holiday homes that you use yourself.
Tip #5 – Claim for Tenant-Related Costs
Just think about all of the money that you spend on tenant-related issues.
Of course, you have any maintenance costs related to the issues that they highlight. However, you also have to spend money on contracts and handling other tenant affairs. Plus, you have to market the property whenever you’re looking for a tenant.
Even gardening and pest control are issues that cost money and directly affect your tenants.
These are all things that you can claim for in your tax returns.
It’s Time to Boost Your Tax Refund
There are likely a few claims that we’ve mentioned here that you’re not making as a property investor.
However, this is just a sample of the deductions you can claim. There are many more related to insurance, property tax, and other costs.
That’s why it’s so important to work with a professional when you’re creating a tax strategy. There are so many holes that can form in your bucket and you have no idea that they’re there until someone plugs them.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.