Sneaky EOFY Property Manager practices

I have just been getting my end of month statements and End of Financial Year Statements. I have a number of property managers and they do things differently. One PM always pays on the last day of the month. One pays the following day after the end of the month and one pays the last day of the month except the 30th June when they pay the day after the end of the month, i.e. 1st July.

The problem this creates from a tax point of view is that if the rent is paid over on the 1st July this is when the management fee will be deducted and so I cannot put this as a deduction this on the previous financial year, I have to do it the following year, but I then have to pay tax on the total rent received without the deduction. It helps the PM because he gets to move 1/12 of all his income into the next year.

It's so annoying.

 

Hi Ned, I cant speak for the requirements in the other states but in WA we need to run our end of month, after the month has ended so we do that the next business day. We also pay out weekly every Thursday so that our landlords have a better cashflow and trades are happier to be paid quicker too.

 

I'm not sure if its sneaky.

However I can confirm that our business was spot checked by the OFT recently. All was fine, but they made a recommendation that EOM payments occur on the 1st day of the next month.

 

Did they say why they recommend that?

 

Less income to pay tax on?

 

The inspector noted - A client payment made on the 1st day of the next month should encompass all income & expenditure up to and including the last day of the previous month.

For the last decade+, every office I've worked in completed payments ON the last day of the month.

 

Shouldnt make any difference from a tax point of view. The date of transaction (ie date tenant paid rent) remains the same regardless of whether it was disbursed out to you today or next week.

 

If accounting is done on a cash basis I think it would be income when it's in my account.

 

It doesn't make any difference to the rent but the management fee is due when it is paid so it falls into the following tax year thus increasing the owners tax bill.

 

It is income when it has been received into your property managers account.

 

I had a call from a random company the other day that first asked how my IP was going (don't know how they knew I had one, or why they assumed I only had one) they then went into a sales pitch how they've got a new product allowing landlords to be paid as soon as the tenants paid rent and whether I'd be interested. To their amazement, I said no and said that I'd prefer to be paid monthly if I got the choice (as opposed to twice monthly, which is how I'm being paid).

It might suit many investors and I know there's a small interest advantage, but I would honestly prefer just being paid once a month. It's so much less messy, given that I've got 10 IPs with 13 sets of tenants, 13 payments per month is quite enough for me.

 

I agree completely. Prefer monthly on my own investment properties and prefer monthly on properties i manage (but do offer other options to do those who want them).

I prefer monthly for my own rental properties because my mortgage payment is monthly. If i have say 2300 coming out on the 4th of the month for the mortgage payment and the PM's statement is say 2000 or 2800 or whatever amount (eg tenants paid on time, which bills have come out, etc), i have a good idea of whether that account needs topping up or not accordingly.

BTW They probably got your details off RPData, some states show owners details.

 

But next year the same will happen and will equal each other out right? Eg $50 management fee on 30 June instead of on 1 July, but then next time $50 on 30 June instead of 1 July, so the total amout of the financial year works out the same.

 

That's actually a good idea, combined with a tax variation will give a nice cash flow boost.

 

It does but it's always better to delay income and bring forward expenses. So if rent is accounted for when receipted then it's always going to be better bringing forward the disbursement prior to EOFY to ensure as many expenses as possible are captured against that income, despite the fact that the total would be the same as you say.

- Andrew

 

Swings and roundabouts?

 

Perhaps for small amounts on individual investors there is no material effect but any accounting firm wouldn't agree, particularly when it comes to business. It's not just an idea, it's a standard accounting practice that any accountant worth their salt would advise. We have deliberately brought forward some large expenditures for this exact reason. Income is harder to defer as there are rules around doing this.

For those of us who treat investment portfolios like a business (or have both), it always pays to follow the same financial ethos. Over time it makes a big difference, just like making sure every dollar is sitting in your offset account at the end of every day where possible.

More detail at following link.

Cutting your AU small business tax bill - Xero Blog

- Andrew

 

Rent is accounted for when received and accounted by the PM... Its doesnt matter if they pay it on 30 June and it hits your bank on 1 July. If their accounting includes it in 2021 then thats final. You dont adjust their annual summary. "Cash basis" isnt correct. Same with employees...If employer pays you on 30 June and you use a different bak and the pay is credited on 1 July it doesnt mean you can adjust the PAYG Summary they issue.

The PM is your "agent".

 

One of my managers emailed me last week: "We wish to advise that our last landlord run for the financial year has been set for the 29 June, 2021". Makes no difference to me, but couldn't see why?

 

Well not something that seems all that important and most people I know with huge portfolios would not even bother the few mins I have.
Better off finding where the next $100k is coming from then worrying about when rent is taxable a few dollars in an offset.