Posted on June 30, 2020
Unfortunately, the life of a property investor is not all Private Jets, Champagne and Caviar. One of the most important aspects is making sure that all records are kept correctly from the start. Yes, we are referring to the dreaded record keeping.
There has been a recent push by the ATO to remind all taxpayers of the importance of record keeping and that the rules are the same regardless of whether a taxpayer holds an investment property for 6 months or 20 years.
The ATO can knock on the door at any time and start questioning the income and expenses that have been reported and if valid invoices can not be shown, the ATO can disallow deductions and amend income.
To ensure that an ATO visit does not become a stressful experience, it is important to have the correct record keeping procedures in place. An annual file which contains all income and expense invoices for the financial year is a great start. This can include Rental Agent summaries, bank statements and expense invoices such as Council Rates. It is also important to keep detailed records of all improvements made during the financial year to ensure the correct tax treatment i.e. whether the cost is expensed or depreciated.
At the end of each financial year, this annual file can then be provided to your friendly Accountant to assist in the smooth preparation of the Income Tax Return. It’s a win-win!
But wait, there’s more! The record keeping does not stop there. A separate file can also be kept in regards to the purchase of the property. As properties can be held for an extended period of time, it is important to keep track of these records to avoid any future hassles of chasing up information that is five or ten years old or more. This file can contain information such as:
If an investment property is held for a number of years, or if you hold more than one investment property, record keeping files can pile up and storage can become an issue. That’s why we at Hall Consulting are looking into efficient processes for storing the abovementioned information electronically such as our client portal, where information can be uploaded and accessed at anytime.
A reliable record keeping system will be useful when it comes time to cash in on your investment, calculate that Capital Gain and buy that Luxury Yacht. Now you will just need a file for all those boating expense…