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Now is a great time to make some New Year “financial” resolutions. It is something I try to do each year and these are a sample of my personal resolutions:

But before you can move forward, you need to ensure that your old “baggage” has been dealt with. This means lodging your tax return/s as soon as possible and hopefully get an early Christmas present in the form of a refund cheque. The sooner you lodge your tax return (and file away your old documentation from the past year away) the better.

For individuals, it is time to sort through all those receipts and make sure you claim all the necessary deductions you are entitled too. You are able to claim all expenditure that is directly related to earning your income subject to certain exceptions. It is important that you are able to substantiate any items you are claiming and to keep these receipts for five years. Items that are commonly claimed include:

It is a good idea to make a list all the items you have receipts for before you go to your accountant. They will be able to ensure that all possible deductions are claimed. This will also save you money in accounting fees.

 

If you do not get a large refund, It is because your employer has taken out just the right amount of tax and you do not have many work deductions. This actually means that you are better off as you have not spent money on working. You will only get (on average) thirty cents in the dollar back on any expenses.

 

For taxpayers with rental properties it is essential to make a summary of all costs. I thoroughly recommend obtaining a depreciation schedule of construction costs which enables a write-off of the cost of construction of the certain property. For residential properties, where construction commenced between 18 July 1985 and 15 September 1987, a deduction of 4% of the construction cost is allowable. For properties where construction commenced on 16 September 1987 and onwards, a deduction of 2.5% of the construction cost is allowable each year. It is often difficult to obtain the actual construction cost so a quantity surveyor is able to estimate the construction cost and give a written report of the capital works deduction and also the depreciation for any items of fixtures and fittings (such as carpet, curtains, blinds, hot water systems etc.) included in your property purchase which are eligible for higher depreciation rates. The cost of the report is an allowable tax deduction in the year paid.

 

Another, often forgotten, cost is borrowing expenses. While these are not deductible outright, they are deductible over 5 years or the term of the loan – whichever is the shorter period. Borrowing costs include loan establishment fees, mortgage protection insurance, legal fees and stamp duty associated with the mortgage, valuation and survey fees.

 

Interest on borrowing associated with the property purchase is often the major expense associated with most investment properties. Interest deductibility depends on the “purpose” of the loan rather than the security. For instance you may offer as security your main residence – but the purpose of the loan was to purchase the investment property. The interest on the loan will be deductible in the year paid. Other costs that are deductible outright include agents commission, advertising, body corporate expenses, cleaning, council rates gardening/lawn mowing, insurance, land tax, sundry legal costs, pest control, stationery/phone/postage, repairs and maintenance and travel to inspect the property.

 

For taxpayers with businesses, now is the time to do some projections based on actual figures from the past year and start monitoring your business’s performance. You can then gauge your actual performance to budget and make adjustments where necessary. Remember that there are two basic ways to increase disposable income - by increasing actual turnover or by reducing expenditure. Now is the perfect time to make sure you and your financial affairs are in order. A little bit of preparation will go a long way to ensuring that the New Financial Year is a time for either celebrating or making a fresh start.