Imagine you just received a letter from the ATO advising they will be conducting an audit of your tax affairs.
For many this is a daunting task and dare I say it; even a visit to the dentist is looking better.
With an increasing number of ATO audits it is imperative that as a property investor we prepare ourselves for an easy passage that can be achieved by following a few simple steps.
1. Audit insurance
A relatively inexpensive policy can at least assist with the costs of an audit.
2. The right name
Ensure that the name on the property contract (and therefore title deed) is the same as on the loan documents.
The primary information is the title deed and if the loan is in different names then additional paperwork in the form of an “On Loan Agreement” may be required to substantiate the interest deductibility to the ATO.
3. The right bank account
Ensure all rents and property expenses pass through the bank account in the same name as the property title deed.
4. Depreciation matters
Your depreciation schedule must be prepared by a quantity surveyor.
5. Scraping schedule
If a renovation has been completed you should have a properly prepared scraping schedule to allow you to write off the value of the items you throw away.
6. Count the costs
All repairs and maintenance costs must be fully justified and you need to ensure that any costs of a capital nature are depreciated and not expensed.
This can be tricky and a repair to the kitchen cabinets prior to the property being rented is deemed capital while the same repair during a rental period could be a repair.
7. Maintain your records
- Also read:The Rental Squeeze: Exploring Australia’s Strained Housing Markets | Property Insiders [Video]
- Also read:Latest Asking Prices State by State | Listings and asking prices steady in lead up to market hiatus
- Also read:10 BIG Benefits of setting up an SMSF or a Family SMSF
- Also read:Here’s how to avoid these 12 common reasons property investors fail to build a Multi Million Dollar Property Portfolio
- Also read:Auction clearance results December 2nd – Generally Steady Results on Another Big Day of Auctions
Ensure all your records are easily accessible.
The use of a rental agent can assist, as he should be authorised to pay all expenses (other than interest) and receive all rents.
He will send you a monthly and annual summary with all supporting documents attached.
If you are using a trust you need to ensure that the trust has been correctly written and operated, especially if as an individual you are claiming negative gearing.
Remember not all trusts are the same and many do not allow the taxpayer to claim negative gearing.
The use of a tax variation request will improve your cashflows and may reduce the risk of an audit especially if a large refund is envisaged.
10. Voluntary disclosure
If you have incorrectly made a claim in your tax return then a voluntary disclosure to the ATO prior to the tax office completing the audit could significantly reduce penalties.
11. Get a good accountant
Even if you are innocent of any wrongdoing an ATO audit can be nerve-racking. Above all work with an experienced property accountant who will help you through any audit or review.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you're wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that's what you exactly what you get from the multi award winning team at Metropole.
If you're looking at buying your next home or investment property here's 4 ways we can help you:
- Strategic property advice. - Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more
- Buyer's agency - As Australia's most trusted buyers’ agents we've been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective - that's something money just can't buy. We'll help you find your next home or an investment grade property. Click here to learn how we can help you.
- Wealth Advisory - We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
- Property Management - Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.
The article is general information only and is intended as educational material. Metropole Wealth Advisory nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives.