A few years ago after I purchased my 4th investment property I sat down with my Accountant and developed a simple to use investment property spreadsheet for tax.
This spreadsheet will help you calculate your income and expenses for as many properties as required.
It will also help save you save time at the end of each financial year and put you in good stead when the time comes to sell your investment property.
The spread sheet is relatively easy to use and can be modified to suit your requirements.
It will help you track and record the following information for as many properties as you own:
- Annual income
- Annual costs
- Entry costs
- Exit costs
What documents will your Accountant need to you to supply to complete tax return ?
There are two types of property investors active and passive investors.
Passive investors are those who dump all of their receipts on their Accountant at the end of the financial year and let them deal with the fall out.
Professional investors on the other hand give their accountant a summary of the income and expenses for their properties which in turn reduces accounting fees and gives them control over their portfolio.
Being an active investor gives you the opportunity to review your cash flow position on a property by property basis.
Purchasing expenses (if applicable)
If you purchased a property this year then you’ll need to inform your accountant of the expenses associated with the purchase. You will find most of these figures in the settlement statement provided to you by your conveyancer at the time of settlement.
Most accountants recommend that you provide a copy of the relevant pages from the contract of sale and your settlement statement to them so they can make sure no deductions are overlooked.
Common deductions which you can claim on a new purchase include:
- Stamp duty.
- Misc government fees (transfer and registration of mortgage).
- Pest, building and/or strata inspections.
- Conveyancing fees.
- Bank cheque fees.
- Buyers agency fees.
- Borrowing expenses (see loan expenses).
- Penalty interest (if applicable).
At the end of each financial year your property manager will send you an annual income and expenses statement showing the total rent received as well as the total costs associated with the management of your investment property.
You can organise for your property manager to pay any expense associated with your property. The following expenses may be paid from your rent and will be included in your monthly and annual statements:
- Property management fees.
- Letting fees.
- Tribunal expenses.
- Handling fees, postage fees and sundry expenses.
- Council rates.
- Strata fees.
- Maintenance fees.
- Land tax.
Rates & levies
If you purchased an investment property in the last financial year then you can add in or deduct any settlement adjustments for strata fees, water rates and council rates. Alternatively, you can keep the rates and levy notices and add them up as a up at the end of the year.
- Council rates (four notices received each year).
- Water rates (four notices received each year).
- Body corporate / strata levies (four notices received each year).
- Land tax (annual).
Most lenders will provide you with a final statement at the end of the financial year which displays the total interest and fees charged to you for a particular loan during that year. In many cases, you can also find these figures in your internet banking, although this will take longer.
If you purchased a new property or refinanced a loan this year then you’ll need to calculate your borrowing costs.
- Interest expenses.
- Annual package fee / monthly fees.
- Loan setup fees (if you setup your loan this financial year):
- Application, valuation, settlement and documentation fees (if applicable).
- Lenders Mortgage Insurance (LMI) premium (if applicable).
- Lenders legal fees (if applicable).
- Brokerage fees (if applicable).
Repairs & renovations
Repairs and renovations are treated differently by the Australian Tax Office. A depreciation report will help your Accountant or tax agent break down the tax deductible items associated with your property, while your Accountant will be able to help you break down any other items, including:
- Repairs (e.g. plumbing and electrical).
- Cost of construction (if you built the property this year).
- DA fees, architect fees, surveys and compliance certificates (if developing).
- Pest control.
- Building insurance (note: for units and townhouses the building insurance is paid by the strata corporation and therefore form part of your strata levies).
- Landlords insurance.
- Depreciation schedule (only needs to be provided once).
- Stationery, telephone expenses and postage.
- Travel to inspect your investment property.
- Legal fees.
Your gross income for a property is very easily to calculate and can be easily located on your income and expenses report provided by your property manager at the end of the financial year. Common items to add into the income column include:
- Rental income.
- Claims on insurance policies.
- Water usage charged to tenants.
Is there any additional information that your Accountant need?
Your accountant will need to know some additional information about your property outside of your income and expense figures including:
- The address of the property.
- The percentage of the property that you own.
- The date purchased (if purchased this year).
- The date the property started earning rental income.
- The number of days the property was rented for this year (ask your property manager).
- The number of days the property was used for private purposes (e.g. holiday homes).
- A list of assets bought and sold to assist your accountant to calculate your depreciation deductions.
- Any funds redrawn from your loan this year.
How can you keep better records?
If you’re going to build a decent property portfolio then keeping good records is essential.
Buy filling all of your receipts, keeping accurate records using the investment property spread sheet for tax and staying connected to your Accountant throughout the year you will be well place come tax time.
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