5 TAX TIPS FOR PROPERTY INVESTORS

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5 TAX TIPS FOR PROPERTY INVESTORS
Just like Christmas, the end of the financial year (EOFY as it’s now commonly known) has come around once again.

But unlike the more festive season at the end of the calendar year, you can’t defer or forget your financial responsibilities at the EOFY.

While it may be easy to put off buying a Christmas present for the distant relative until you see them at a family gathering in January, the Australian Taxation Office (ATO) is far less forgiving than uncle Gary.

The bottom line is if you don't have your records in order then you might not be able to claim any tax deductions or benefits.

For property investors, particularly those utilising negative gearing, this can mean the difference between maintaining cash flow or blowing their budget, or worse a set back to their plans to purchase their next investment property.

Here's my top five tax tips for property investors.

While the list is not exhaustive, they should get you thinking about how best to maximise your property investment to ensure you get the tax benefits you deserve.

And if you haven’t started your property investment portfolio just yet, they’re a good reminder to contact MRD to help you to start planning now to secure your financial future.

1. Don't forget depreciation

Make sure you have your records in order to claim depreciation on your property and its fittings, such as furniture, white goods and any capital works such as the cost of construction.

Claiming a tax benefit for depreciation means writing off the cost of the item over a set number of years – in other words the actual life of the asset.

The ATO sets out what it considers to be appropriate periods for depreciation, for example the cost of a stove can be written off over 12 years which means you claim one-twelfth of its cost as an expense each year.

Depreciating assets that cost $300 or less are also generally immediately deductible.

However there is a difference between depreciation for assets such as the stove and capital works, so it's a good idea to get professional advice first.

MRD can help you determine what you can claim so you make full and correct use of the available depreciation allowances.

Remember the more the depreciation you can claim, the higher the amount to offset against income when you’re negative gearing.

2. Bring forward any repairs or maintenance

If you’ve been planning on doing any repairs on your investment property, getting them done before 30 June will allow you to claim them as a deduction.

You need to be careful though in defining whether the work is a repair or maintenance or an improvement, as repairs and maintenance are deductible for investment properties, where improvements such as landscaping, putting in a pool or adding another room are not.

Again, MRD can advise you on the difference.

3. Prepay annual costs such as interest or insurances

If you’re in a position to prepay some of your annual expenses now, it may be worth doing so to get the tax benefit this financial year.

Items such as next year's bank interest, income protection insurance premiums, council rates, body corporate costs, or any other annual fees can all add up to a sizeable sum which can be offset against your other income and reduce your tax.

Small strategies like this and others can make a huge financial difference to you at the end of the financial year, and a MRD financial planner can advise on how best to benefit from them.

4. Look at loan refinancing options

The end of the financial year is a good time to review your loan portfolio and consider refinancing.

One reason is financiers are often keen to write more business before the EOFY to meet their targets, and this may provide some competitive pricing on rates.

Another is if you do refinance before the end of the financial year, the saving could provide better cash flow to put towards paying down your mortgage or saving for a deposit on another investment property.

But make sure you maintain a clear link between the initial mortgage to acquire the property and the refinanced amount if you wish to offset the interest paid on the investment loan.??

MRD can recommend whether refinancing is something that will add value at this time or not, as it’s not a ‘one size fits all' approach.

However if the strategy can work for you then we can also advise on a range of refinancing options and the best way to ensure you stay compliant with the ATO.

5. Consider debt recycling strategies

Debt recycling involves using as much of your cash flow as possible through an offset account to reduce your total annual interest payable.

It’s not for everyone, but if used responsibly and with the right advice, it can help you pay down debt quicker, or purchase additional investment properties in line with your financial goals (and it’s important to remember that you need goals to start with).

If you’re not sure if debt recycling is the correct strategy for you, just ask us and we can provide a blueprint for your financial goals.

And lastly don't go it alone

While this should really be tip #6, I think seeking professional advice is a must in any property investment strategy, not just at the outset but on an ongoing basis as well.

It’s the partnership approach MRD provides, to give you investment advice around residential property in order to implement any of the above strategies.

We start by helping you define your goals and then provide a professionally modelled (and workable) plan built especially for you to ensure you successfully stay the course and achieve what you set out to do.

If you’d like to speak with us on any of the tips in this article, or if you know anyone who may be interested in achieving financial freedom through property investment, call us on 1300 883 854 or email office@mrdpartners.com.au.

Partnering with you for your investment success.
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Nick Lockhart is an acclaimed keynote speaker as well as founder and director of MRD Partners.

Nick is a result driven presenter and mentoring expert who specialises in investment techniques, finance and economics topics with a high degree of personal development and motivation woven through each of his presentations.

His focus is strategic partnerships with clients, helping them pay off their homes (and investment properties) in record time, minimising their tax liability and reducing debt to build wealth faster and retire on a comfortable and self funded income.
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