Your investment property should work for you and not the other way around. So it’s important that you are not burdened with hours of paperwork that discourages you from buying your second or third properties. Here are a few book keeping tips for you to keep in mind.
Here are some book keeping tips to manage your expenses, tax records with minimum fuss:
- Find a good real estate agent. They will be responsible to ensure your rent is collected and they handle all tenant enquiries. This can save you a lot of time and hassle.
- Get your property manager to pay for all expenses from the rent they collect for you .
- Avoid paying any expenses yourself out of your own pocket. This allows you to use the rent collected to pay expenses instead of it sitting in their Trust Account. Avoid paying anything yourself. If it is unavoidable, simply summarise what you have paid on one page and give this to your accountant.
- Insist on getting a Yearly Summary from your property manager. At year end they usually supply you a one page summary of all rent received and expenses paid on your behalf. If you don’t get one, make sure you do.
- Give this one page summary to your accountant.
- To prevent the risk of claiming the expenses twice, be careful to avoid recording the expenses paid by your property manager.
- There is no need to give your accountant the physical tax receipts. File them away in case you’ll need them in an audit by the ATO.
- Loans. You can provide the loan statements you get from your lender to your accountant, or you can simply summarise the interest paid on your loans on a spreadsheet.
- Keep in mind that the first year is the most complex in any property investments. It involves creating a “Purchase Sheet” that is carried over from year to year. When you decide to sell, you will need accurate records of what was incurred to determine your capital gain tax (if any). Over time it gets easier to maintain the “purchase sheet”.
- If you carry out any renovation works on your property make sure you get a Quantity Surveyor to produce a “Scrapping Schedule.” This allows you to claim tax deductions for the old fixtures and fittings that are thrown out/demolished.
- Don’t forget to get a Depreciation Schedule (also from a Quantity Surveyor) as your accountant is not permitted to estimate fixtures and fittings or building values. This is a very important item as it allows you to claim an expense without having to pay cash for it. It’s simply a paper deduction but allowed to be claimed against real income/rent received.
- Make sure you use a property tax accountant as many accountants do not know what to claim for your rental properties.
- If you have several properties, the process is the same.
The better you are at property “book keeping” and the smarter you are in managing your property related expenses and eligible tax deductions (by ascertaining summary reports from your property manager and quantity surveyor, that you then give to your accountant) the easier it is for your accountant to process your tax return. The easier and more straight-forward it is for your accountant, the faster they’ll be able to process your tax return as less time is wasted on gathering information, which as most accountants charge in billable hours, generally means reduced accounting fees. Ultimately, better book keeping will save you time and money and will help you to focus on growing your wealth with additional property investments.
To know more on how to process your property tax call or e-mail us at:
Founder & Non Executive Chairman Chan & Naylor – Australia’s leading nationwide property business tax accounting and wealth advisory group
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.