As the financial year draws to a close on 30 June 2024, it’s crucial for you, as a property investor, to strategise effectively to maximise your returns and minimise your tax liabilities. The past year has undoubtedly brought its set of challenges, from fluctuating market conditions to evolving regulatory landscapes. However, it also presents unique opportunities for savvy investors ready to optimize their portfolios.

This guide is designed to help you navigate the complexities of the end-of-financial year (EOFY) and to set you up for success in the upcoming financial year.

Section 1: Understanding the Basics

What is EOFY and Why Does it Matter?

EOFY stands for the End of the Financial Year, a critical time for financial assessment and planning, particularly if you own an investment property or property portfolio back in Australia. It marks the deadline for submitting your tax returns and is a prime time to review financial strategies to ensure you’re not only compliant but also making the most of potential tax benefits.

The key dates to remember are:

• June 30, 2024: The last day of the financial year.
• July 1, 2024: The start of the new financial year.
• October 31, 2024: Deadline for filing your tax return unless you're using a registered tax agent.

During this period, your main objectives should be to ensure all financial documentation is in order, identify all possible deductions, and consider strategies for potentially lowering your future tax liabilities.

Document Everything

Accurate and comprehensive record-keeping is vital. Ensure you have detailed records of all transactions, mortgage statements, management and maintenance expenses, insurance costs, and any other expenditures related to your properties. These documents are crucial for claiming deductions and can be vital in case of any audit by the Australian Taxation Office (ATO).

Section 2: Tax Planning Strategies

Maximise Your Deductions

One of the most effective ways to reduce your taxable income is by maximising your allowable deductions. Here are several key expenses that you should ensure are meticulously documented and claimed:

• Interest on loans: You can claim the interest charged on loans used to purchase or improve your rental property. It's important to review both the purpose and the security of your loans to ensure that you're correctly claiming your deductible interest.
• Depreciation: Items such as appliances and furniture in your rental property depreciate over time. This depreciation can be deducted from your taxable income. Engage a quantity surveyor if necessary to create a depreciation schedule.
• Repairs and maintenance: Immediate deductions can be claimed for repairs and general maintenance of the property, provided they relate directly to wear and tear or other damage that occurred as a result of renting out the property.
• Property management fees: If you employ a property manager, their fees are deductible.
• Insurance: Any insurance premiums for building, contents, and public liability are deductible.

By taking advantage of these deductions, you can significantly decrease your taxable income, which in turn, reduces your tax burden.

Plan for Depreciation

A depreciation schedule is a complete breakdown of all the depreciable assets within your property. It will detail the decline in value of fixtures, fittings, and the building itself over time, providing you with substantial tax advantages. If you haven't got a current schedule, consider engaging a professional quantity surveyor. The initial cost is typically offset by the tax benefits in the first year alone.

Optimal Financial Structuring

How you structure your property investment can have a profound impact on your tax outcomes. For instance, choosing the right type of loan and repayment method can affect your tax liabilities and financial flexibility. Interest-only loans might offer tax advantages for certain investors, but they also mean you're not reducing the principal on your loan. Always consult with a financial advisor to tailor the structure to your specific circumstances.

Section 3: Property Portfolio Review

Annual Review: Why It’s Necessary

Conducting an annual review of your property portfolio is essential. This process involves assessing each property’s performance and the health of your overall investment strategy. Key performance metrics to review include:

• Cash flow: Are your properties generating enough rental income to cover expenses and provide income? Given the recent increases in rental prices across the country, this could be an excellent time to review your rental agreements.
• Property value: How have your properties appreciated or depreciated in value? Speak with your Qualified Property Investment Adviser (QPIA) to review your progress here.
• Rental yield: Are you achieving a competitive yield based on current market values?
• Loan-to-value ratios (LVRs): High LVR may mean higher interest rates or tougher lending conditions. Lowering your LVR can improve your borrowing capacity, could allow you to access equity to further expand your portfolio, or even reduce your interest rate if your LVR has dropped.

This review will help you decide whether it’s time to sell underperforming properties, increase rents, or perhaps buy additional properties. It’s also the perfect time to assess the risk exposure of your portfolio and consider if you need to diversify your investments.

Refinancing and Restructuring

The end of the financial year is an ideal time to consider refinancing your loans. This can potentially lower your interest rates, reduce your loan repayments, release equity, or even secure a pre-approval for further property investment. If you’d like to explore your options and how much you could potentially save, book in a complimentary review of your existing loans to explore your savings and most suitable options.

Mitigate Risk and Plan for the Unexpected

A comprehensive review also involves planning for potential risks. Consider scenarios such as interest rate rises, vacancy periods, and major repairs. How would these impact your cash flow? Ensuring you have a buffer or contingency plan can help you manage during times of financial stress.

Section 4: Legal and Compliance Updates

The regulatory environment for property investment is continually evolving, and staying compliant is essential to avoid fines and maximise your investment returns.

In the last financial year, several legislative changes could impact property investors, from adjustments in rental law reforms to changes in tax regulations, with Victoria being a prime example. It’s crucial to stay informed about these changes as they can directly affect your responsibilities and benefits as a landlord.

Safety and Insurance Compliance

Regularly check that your properties comply with safety standards and regulations. This includes smoke alarms, structural integrity, and security features. Compliance not only ensures the safety of your tenants but also protects you from legal liabilities.

Additionally, review your insurance coverages to ensure they are adequate and up-to-date. Property and landlord insurance should cover the building, fixtures, and fittings, and ideally, loss of rent and tenant-related risks.

Section 5: Advanced Investment Strategies

As you grow more comfortable in your role as a property investor, consider exploring advanced strategies to further enhance your portfolio's performance and resilience.

Diversification is a key strategy to mitigate risk. Consider geographic diversification by purchasing properties in different regions or states, or diversifying into different types of properties, such as commercial real estate, which may offer different benefits and risks compared to residential property.

Working with professionals who understand the complexities of property investment can provide significant advantages. Consider consulting with property strategists, tax advisors, and financial planners who can provide insights and strategies tailored to your personal circumstances and goals.

Mitigating Risks

Understand the risks associated with property investment and take proactive steps to mitigate them. This includes ensuring that your property is competitively priced, well-maintained, and appropriately insured. Additionally, keeping a close eye on market trends and economic indicators can help you anticipate and react to changes that could impact your investments.

Section 6: Preparing for the New Financial Year

The end of the financial year is also a time to set goals for the future.

Consider what you want to achieve in the next year. Are you aiming to expand your portfolio, increase your rental yields, or perhaps reduce your debt levels? Setting clear, measurable goals will help guide your decisions throughout the year.

The property market is dynamic, and continuous learning is crucial. Stay updated with the latest property news, attend seminars, and engage with other property investors. Expanding your knowledge can uncover new opportunities and strategies to enhance your investment performance.

There are numerous tools available that can help streamline the management of your properties, from digital platforms for tracking expenses and managing leases to apps that provide real-time market data. Leveraging these tools can save time, reduce errors, and improve your decision-making process.

Conclusion

As the EOFY approaches, taking proactive steps to manage your property investments wisely can lead to substantial financial benefits and set a strong foundation for the future. Remember, every property investor’s situation is unique, so tailor these strategies to align with your specific financial goals and circumstances.

Don't navigate the complexities of property investment alone. Speak with professionals, and stay informed, stay prepared, and maximise your investment potential for the coming financial year.

Ally Home Loans Pty Ltd is your ally in finance for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.

Book an obligation-free, complimentary consultation here today.

Ally Home Loans Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.