As we approach the end of the financial year, it’s time for property investors to start thinking about their tax returns. The Australian Taxation Office (ATO) recently released a media statement reminding property owners what they can and cannot claim at tax time.
Understanding ATO’s Focus
The ATO has a keen focus on rental property deductions. They have identified several areas where taxpayers make common mistakes, including interest on loans, repairs and maintenance, and capital works deductions. Understanding these areas is crucial to ensure compliance and avoid unnecessary penalties.
Interest on loans
If you have taken out a loan to purchase your rental property, the interest on this loan is tax-deductible. However, you cannot claim the interest if the loan is used for private purposes.
Repairs and maintenance
Any costs incurred for repairing or maintaining your property can be claimed. This includes things like painting, plumbing, and electrical work. However, these must be related to wear and tear or other damage that occurred during the period you rented out the property.
Capital works deductions
You can claim a deduction for the construction costs for your rental property over a 25 or 40-year period. This is known as a capital works deduction. Also, you can claim a deduction for the depreciation of assets within your property, such as appliances and furniture, as well as the property itself.
What Can’t You Claim?
The ATO has also outlined some common mistakes property owners make when claiming deductions. These include:
Initial repairs
Repairs made to a property in the initial stages of purchase or just after purchase are not deductible. These are considered capital expenses and should be claimed over a number of years.
Travel expenses
From 1 July 2017, travel expenses related to inspecting, maintaining, or collecting rent for a residential rental property cannot be claimed.
Tips for Compliance and Maximising Deductions
Clear banking accounts and loans for each property investment
Having separate accounts for each property investment makes it easier to track income and expenses for each property, ensuring accurate record-keeping and simplifying the process at tax time.
Diligent record-keeping
Keep records of every transaction related to your property investment, including purchase contracts, receipts, loan statements, and rental records. This will help you claim all the deductions you are entitled to and provide necessary documentation if the ATO requests it. A digital tracking tool like the ASPIRE Property Advisor Network Portfolio Manager can assist in tracking all your records.
Understanding the guidelines for expenses
The ATO has specific guidelines for what you can and cannot claim as expenses. For instance, you cannot claim travel expenses to visit your rental property. Similarly, capital expenses or improvements must be claimed over a period of time or added to the cost base, not claimed as a one-off expense.
Consult a tax professional.
Tax laws can be complex and challenging to navigate. A tax professional can provide advice tailored to your circumstances, ensuring you comply with all requirements and maximise your deductions.
Start early
Be prepared and start now to review and check before the 30th of June cut-off so as not to miss anything in this financial year.
Remember, while these tips can help you prepare for tax time, they are general advice in nature. Your circumstances may require different considerations, so always consult with a tax professional for advice tailored to your situation.
In conclusion, tax time does not have to be stressful for property investors. With diligent record-keeping, a clear understanding of the ATO guidelines, and the right professional advice, you can navigate this period with confidence and ease.
For more detailed information, you can refer to the following resources:
Remember to keep a digital backup of each financial year’s documentation for at least seven years. This guide should help you navigate tax time as a property investor.
Always review any property investment strategy, location research, and investment analysis data with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy. Never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933.
