Article written by Adrian Ballantyne from realestate.com
Tax time is upon us, and for most people the annual rush to pull together all the information the taxman and your accountant requires will have begun.
And those people with investment properties could be about to find out just how challenging the end of the financial year can be if you don’t have everything in order.
Hiring a good property manager to take care of your investment makes sense for a lot of reasons, but at tax time the benefits are even more obvious. Picture: Supplied
Here’s why having a property manager can pay off big time at the end of the financial year.
Just like many of the expenses associated with your property, the fees you pay your property manager are completely tax deductible.
So while it will cost you money to have them manage the property for you, you’ll be able to recover some of that expense at tax time.
We’re all busy people, and can you really put a price on your time?
Arguably the biggest advantage of having a property manager when tax time rolls around is that it’s their job to do a lot of the heavy lifting for you when it comes to the calculating the property’s income, expenses and doing the paperwork, according to RBK Advisory director Jason Robinson.
“When we have clients that come in who don’t have property managers, the level of paperwork is insane,” he says.
Account and the director of RBK Advisory, Jason Robinson, says property investors who choose to manage their own properties tend to be swamped with “piles and piles of paperwork” at the end of the financial year. Picture: Supplied
“With all their deductions and understanding what they can and can’t claim, they have piles of paperwork, bank statements and receipts.”
Robinson recalls a client with five or six properties who managed them all by themselves, and subsequently spent months putting the paperwork together. “I’m always gobsmacked when they walk in, with the amount of paperwork that it takes to put together for tax time,” he says.
“With a property manager, part of the fee you pay to them is for them to organise all the paperwork. So at the end of each month they provide you with a beautiful income and expenses statement, and at the end of the year they summarise that all into one statement you can give to your accountant.”
With so much paperwork and so many numbers flying around, it’s easy to get something wrong.
Robinson says having your property manager preparing the financial statements for your investment property will almost certainly minimise the risk of making an error and attracting unwanted attention from the Australian Taxation Office.
“We find that with individuals or people who are preparing their own paperwork for tax time for their investment properties, they’re making quite crucial errors by not adding up the income properly and risking audit if they haven’t declared all the appropriate income,” he says.
“With the ATO’s increased audit activity, you don’t want to leave yourself at risk if you’ve made errors in your total income or declaring too many expenses or the wrong expenses.
One of the biggest risk areas for owners of investment properties is understanding what can be claimed at tax time.
Property managers should be able to tell you how your proposed works or repairs will likely play out when you meet with your accountant.
“It’s knowing the difference between what is a genuine repair and maintenance or what has improved the property and has to be claimed over multiple years,” Robinson says.
It’s more than likely that you’ll need to either either repair or renovate your investment property at some stage, and a savvy property manager will be able to advise on whether it constitutes a capital improvement to the property. Picture: Supplied
“That’s a big one that people make mistakes on. For example, they go and spend $3000 or $4000 putting a deck or pergola in because the old one fell apart, but if you’ve made improvements to the property and it’s bigger and better and it’s got a roof on it, that’s no longer a repair, that’s a capital improvement to the property.”
“Good property managers will be able to advise on that. And if there’s a substantial amount of repairs or maintenance or capital improvements done, they’ll be able to advise on a depreciation schedule.”