It’s tax season!
And you and I both know that, no matter how irritating it’ll be collecting all those receipts and statements, you’re probably going to get a big chunk of money back.
So it’ll be worth it.
And yes, I’m one of those people who loves tax.
I adore it.
And that’s because
Our Tax Laws Have Been Written To Help Us Get Rich.
They’re so generous it almost seems like the government wants us to invest.
Which of course, is true.
They need us to supply rental properties.
And to build new houses.
Because if we don’t, who will?
What it means is, we get to create wealth and replace our incomes while getting thousands and thousands of dollars back.
If that doesn’t get you excited, what will?
With the end of the tax year upon us, it’s time to cut to the chase and make sure you’re getting every possible cent back.
This information is vital for first time investors too.
You should get yourself set up correctly from the start.
Here is what you need to know to get as much back as possible.
Get a great accountant
It probably goes without saying, but you need a great accountant.
A brilliant one in fact.
Preferably one who owns multiple investment properties.
Because an average, even poor accountant might know the basics. But they’re reactive, not proactive.
And the difference is that a reactive accountant doesn’t do anything until you bring them your receipts.
The proactive accountant makes sure you’re set up correctly from the start to get as much back as possible.
Your accountant needs to set things up well in advance so you can claim as much as legally possible.
And the only way they’ll know all the legal tricks in the book is if they have multiple properties themselves.
Self interest is the best teacher of all.
Understand Depreciation
Depreciation is probably the greatest tax rule of all.
It allows you to deduct the value of a whole range of items in your investment property.
I’ll give you an example so you get the idea.
Let’s say your investment property has a brand new electric hot water system.
And it has an expected life of 6 years.
What this means is, every year you can claim back 1/6th of the value of your hot water system on your taxes for 6 years.
If it costs $1,800 brand new, you get to claim back $300 each year on your tax return.
This means you reduce your taxable income by $300 which means you pay less tax and get a refund.
If you’re earning in the 32.5% tax bracket, you get 32.5% of $300 back in your pocket which is $97.50 every year for 6 years.
And you can do this on all sorts of items, from carpets to curtains, security systems to water tanks.
Even umpire chairs if your rental property has a tennis court (yes, really).
In all there are 166 items you can get tax back on, including the house itself.
That’s right.
The build cost of your house is deductible at 2.5% for 40 years. If the build value is $300,000, you get to claim back a whopping $7,500 off your tax return for decades.
The best part?
If you borrowed money for your investment property, you’re claiming a tax deduction on something you haven’t even paid for.
And then you get to claim the interest on it too.
Seriously, how good is that!
OK, I’ll calm down now and let you know that you don’t even need to figure out how much everything costs.
All you do is get what’s called a Depreciation Report from a Quantity Surveyor.
They figure out how much everything is worth, and they’ll give you a document which you forward straight to your accountant.
And one more thing, you can also claim back the cost of capital works too. So if you add a garage, a bedroom or something like that, it’s claimable.
My advice is to let your accountant know before you do anything like this to make sure you can claim back the maximum amount in the shortest possible time.
Claim Everything Else Back
The simplest rule for real estate investing and tax is … if it costs, claim it.
From the interest on your loan (and the loan you took out for a deposit if you did this) to the property management fees, advertising, inspection costs, your deprecation schedule, council rates, accounting fees, water, gardening, insurance and repairs and maintenance.
The actual list is enormous so make sure you keep track of everything you spent money on and get it all to your accountant.
If there’s something you can’t claim, it’s their responsibility to let you know.
PAYG Withholding Variation
Here’s something else you might not know.
Let’s say you’re likely to get back $6,000 a year in tax. And that’s not uncommon either for brand new property.
Of course, you can wait until tax time, lodge your return and get back your $6,000.
But the government (thank you) let you claim it back without even waiting.
It’s called a PayG Withholding Variation, and it lets you claim back your claim every payday.
What this means is, you go to your employer and say …
“I’m getting a $6,000 refund this year, so instead of making me wait, can you just pay $500 a month less to the ATO, and put it in my pay packet instead?”
Sounds absurd.
Only it’s completely legal and thousands of people do it.
Of course, you don’t get the big $6,000 return at the end of the financial year.
But getting it paid to you monthly in advance is probably much nicer.
And it helps with your cashflow.
Own Your House In The Right Structure
Ownership structures is a complicated topic.
And it’s best discussed with an accountant, financial planner or property strategist.
However, here’s a super-quick summary.
Most properties are held in people’s own names.
Either your own name, or jointly your name and your partner’s name.
Personally, I don’t like joint names because you’re forced to split the tax deductions 50/50 between you both.
And if one of you earns less money, you’re paying less tax which means you don’t get to claim as much back.
Far better for them to be in the name of the highest income earner. Unless of course they’re in a super-risky profession in which case we’re starting to get into the asset protection waters.
The point is, be smart about this.
You can also own them in a trust and/or a company. This has some benefits but some drawbacks from a tax point of view too, and it all depends on your personal situation.
And don’t forget that a self managed superannuation fund can be an excellent structure to own investment real estate in too.
It all depends on your circumstances and your long term strategy so for now, be aware of them and when you get ready to purchase, get advice on what structure works best for you.
Get Started As Soon As Possible
The closer you get to June 30th, the less room you have to move.
After all, if you want to do some maintenance, you’ll probably want to do it before the end of the financial year to claim it sooner.
Also, make sure you keep a record of every expense to do with your investment property.
And make sure you don’t mix any personal expenses in with your investment property expenses.
Keep it neat and tidy, OK?
The Government Will PAY You To Get Richer Through Real Estate
Do you realise how lucky you are that we have a government who will pay you to own high growth real estate?
It’s the biggest loophole to getting wealthy there is.
And it’s 100% legal to use their money to do this.
So let’s find out what’s possible for you, and what that would look like.
You’re invited to spend some time on a zoom call with one of our Senior Property Wealth Planners to show you what’s possible.
They’ll help determine your ability to replace your income by investing in real estate.
They’ll map out an overview of what you should do, and when.
And of course answer any questions you have.
There’s no cost for this either.
We do it in the hopeful expectation that if you decide to invest, you’ll ask us how we can help you.
No obligation, no pressure.
First things first.
Enter your details below, and we’ll contact you to book in a time.