Rental Provider's quick guide to the End of Financial Year
Owning a rental property Australia can be stressful, especially at tax time. There are tax benefits of rental property Australia, however for an owner, trying to collate various records, both paper and digital across different providers isn’t an easy task. One benefit of engaging a real estate professional to manage your investment property means that most of the records can be captured in one system. The system can also generate an end-of-financial-year (EOFY) summary that can be provided to your Accountant.
UNDERSTANDING YOUR EOFY SUMMARY
In the lead-up to EOFY, we work through a 6 Step Checklist. This includes:
·auditing each individual owner file to ensure the dissections are correct for works completed at the property
·finalising all previous tenancies in the system
·checking all bills are entered
·that the agency holds enough funds to pay all bills prior to the financial year ending. If there are not enough funds in your rental account, the agency will contact you to deposit further funds into the trust account or make payment directly to the contractor.
·reviewing the accounts for any double-up entries or errors that need to be reviewed prior to processing
·checking all supporting documentation is held on file
On the 1st of July, we will complete our final payment for the year and then prepare a detailed financial summary for our clients showing the income and expenses of the rental property for the previous financial year.
This will break down all expenses for ease of review by your Accountant.
OTHER EXPENSES
In addition to your real estate summary, you may have other expenses which you will need to account for as part of your property tax return. These could include:
1. Insurance
2. Rates
3. Water
4. Capital works and
5. Deprecation;
just to name a few.
If you would prefer these items appear on your rental statement summary, all you need to do is send it to your property manager, pay extra funds to the trust account if needed (especially if due dates are applicable including discounted prices for early payment) and authorise the agency to pay on your behalf. Depreciation reports are often an underutilised resource to investors. For the right type of property, depreciation can mean the difference between realising a tax-effective investment or burden. Several companies offer deprecation schedules including BMT.
INSURANCE REVIEW
Tax time is also a good opportunity to review your current landlord insurance to ensure you have adequate cover under your policy for your investment property. Unfortunately, not all landlord insurance policies are the same, especially when it comes to what is covered. For example, "loss of rent" can mean different things with different providers – for one it can mean rental arrears, but for another, it may refer to the loss of rent due to interruption of rentability at the property (ie property is unliveable due to storm damage). Rental Providers should also be aware that property vacancies can void certain policies. If you aren’t sure what the insurance jargon means, we would encourage you to speak to your preferred insurance broker, who will help you to compare apples with apples and select a cover that is right for you and your property/ies.
ACCOUNTANT’S ADVICE & TAX PLANNING
Whether you are holding the property for capital gain or rental yield, we would recommend that you consult your Accountant or Financial Planner on which strategy you employ for your investment property. You should be clear on what price you need to achieve rent-wise, what your expenditure is and when you are looking to exit the property (price point). Running an investment property without a plan can catch unprepared investors unaware with short and long-term financial loss. Similarly, if you aren’t sure what your property is worth in the current market, now is a good time to get an updated appraisal to run your numbers. The new tenancy reforms also include minimum housing standards which may impact the rentability of a property as well as the profit margin on the investment as a whole. Investors should be aware of what the rental reforms are and what changes (if any) they need to make to their investment property to meet the new requirements. If the changes are not viable for you as an investor, this may also be a trigger for you to review the possible sale price and your proposed exit from the market. It may also be a good opportunity to trade in for a newer, low-maintenance property which may generate a better return both short and long-term.
Disclaimer: The contents do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. You should seek legal advice or other professional advice in relation to any particular matters you or your organisation may have.
