Property

End of financial year investment property checklist

Mortgage One - Friday, July 01, 2011

With the end of the financial year just around the corner property managers and investors need to consider a wide variety of factors when preparing for taxation.

Most investors are likely to agree: the caliber of a property manager is often measured by their record keeping and reporting standards; at least this is true at the end of the financial year. The standard of record keeping and reporting can make or break a tax return. If the records aren't up to scratch, then providing appropriate and correct information to the tax office can be very difficult and time consuming.

Quality record management is something that needs to be ongoing; so if you find that it is not up to scratch this year, make sure the bar is reset and your portfolio is being managed appropriately in the new financial year. Record keeping for the end of financial year can be broken down into three distinct areas: income, expenses and depreciation

Income

Income related to the investment property is probably the simplest area to keep track of because there is generally only one revenue stream for each property: rental income. A good property manager will provide a concise summary of rental payments received over the last financial year. Investors should ensure all rental payments have been accounted for and that rental income amounts correspond with bank statements.

Expenses

Expenses can be somewhat more complex, as it involves a (very) wide variety of items. The list detailed within provides a solid overview of the normal expense items that should be included as part of an investment property claim. It is important to ensure all of the claimable expenses are included as part of the end of year assessment on the property in order to obtain the greatest tax benefit possible. Make sure you are only claiming those expense items that are allowed by the tax office.

Depreciation

Depreciation  refers to normal ‘wear and tear’ to the asset, capital works and other depreciable items such as fixtures, fittings and appliances. The depreciation schedule is one of the most important documents relating to an investment property. For investors it is best practice to engage a quantity surveyor before the property is leased, in order to have a complete and accurate depreciation schedule in place. If you are seeking to claim depreciation on improvements or construction work, but don't have receipts, you will need a valuation report on the property.

Property Purchased in 10/11 Financial Year: 

If the property was purchased in the latest financial year, the tax office will require details of the property including the purchase date, settlement date and purchase price. An RP Data powered agent can provide you with all these details. Other purchase documentation will include paperwork relating to the mortgage (borrowing and set up costs of the loan, stamp duty on the mortgage and government charges) and the date the property was made available for rent.
The end of financial year is also a timely occasion to update the value of your investment property or portfolio of properties. A computer generated valuation can provide a cost effective valuation of your assets quickly and accurately. Understanding whether your asset has gone up, down or sideways in value can provide a good indication of how much equity is available within your investment portfolio; a great launch pad for future investing in the new financial year. Given that in many areas property values have been relatively flat or declined during the last 12 months, it is a good time to reassess your financial position and compare it to the same time last year.

Looking towards the performance of the residential market over the next financial year, the current market and economic indicators continue to look less encouraging. Over the 12 months to April 2011, capital city home values have fallen by -1.5% and in the regional markets house values are down -1.8%. We expect that the subdued market conditions will persist for much of the next 12 months and potential interest rate increases will likely push back any recovery in capital gains. Affordability pressures are prevalent in the market and conservative consumers are paying down their outstanding debt, reluctant to take on any additional debt. Sales volumes are likely to remain at quite low levels and the market is likely to be very sensitive to any interest rate movements. Although we don’t anticipate much in the way of capital gains, we are anticipating that rental rates and subsequently yields will improve resulting in an improved investment return. Building approvals continue to trend lower and first home buyers are relatively inactive, resulting in increasing demand for available rental accommodation

Keep in mind, RP Data are not taxation advisers, accountants or financial planners. We recommend you seek independent professional advice and guidance when undertaking your end of financial year activities.

Source: RP Data

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