We all lead busy lives and hate paperwork right? Developing some systems for managing your investment property will make your life a lot easier.
Here are a couple of tips on making tax time less of a chore:
Keep a folder for each property:
- Setup a lever arch folder for each property owned and divide it into sections such as contract particulars, cost base items, bank statements, yearly expenses, rental statements, lease agreements, etc.
Go paperless:
- Setup paperless eStatements for any investment loan or offset accounts with banks. Not only will it help save a few trees, it will keep your mailbox less cluttered. You can download any statement if required from internet banking for a certain period.
Get your managing agent to pay bills out of the rent:
- Most property managers will offer a free service to pay any bills such as strata fees, council rates, landlord’s insurance and maintenance expenses out of your rent and then distribute the balance to your account each month. Not only will this create less work for you throughout the year it also makes it easier at tax time to take in one yearly rental statement from your property manager with all your income and expenses.
Keep a spreadsheet of expenses:
- Even if your property manager pays expenses from your rent there will still be the odd invoice you will pay personally. Keep a spreadsheet of these items to take to your accountant or ask Sound Property for a template to use. It is important to identify what expenses go on the cost base of the property to reduce your future capital gains tax liability and what can be claimed in your yearly return.
Set-up a basic Xero or MYOB book keeping account:
- If you have a few properties in your portfolio you could go to another level for around $10/month and set-up a basic Xero or MYOB account and feed your bank statements and loan account into the accounting software. This will automatically recognise entries for easy reconciliation and tax preparation.
Understand your cashflow:
- In a low interest rate environment you may find your investment to be positive cashflow after the yearly tax deductions of expenses and depreciation. However, you may find the holding costs throughout the year (i.e. rent – expenses) are negative and therefore the need for a buffer to maintain the investment before your yearly tax return. Generally, we advise keeping 2-3 years worth of holding costs as a buffer that can drip feed the shortfall over the year and replace the funds with the tax return. Alternatively, you can ask your accountant for a tax withholding variation form to adjust your week to week tax to reflect your allowances for owning the investment and receive the return immediately in your pay cycle. Some find this helps with cash-flow throughout the year – but you must be more diligent not to spend it!
Hopefully these tips make it easier for you to manage your investments and spend more time on doing the things you enjoy!
Written by Andrew Cull, Sound Property Group
This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.