Around 8 per cent of Australians own an investment property and this year the ATO will be paying close attention to rental income, deductions, and capital gains.
So a couple of housekeeping tasks as we close the financial year. These will make sure you get things right and don’t attract the taxman’s ire.
1. Keep good records
You’ll need these records to calculate expenses that can be claimed as deductions, and to ensure you declare all rental income in your tax return. If you’re claiming expenses related to items you’ve purchased for the property, you’ll need receipts for those.
2. Complete any property maintenance
Any necessary maintenance work or repairs carried out before the end of the financial year are expenses you can claim sooner. If you missed the 30 June EOFY deadline, you’ll have to wait another 12 months to claim these costs.
3. Declare all rental income, including rental bonds
This includes not just rental income, but also any rental bond money you are entitled to retain. For instance, when a tenant defaults on rent or you incur maintenance costs, and receive insurance payouts as a result.
A lot of investors get into trouble because they don’t understand what can and can’t be claimed:
When an investor’s mortgage repayments and rental expenses outweigh their rental income, these short-term losses are usually tax deductible.
If you spent money on marketing your rental property to find suitable tenants, you can claim it as a deduction. This includes money spent on website listings, print advertising, brochures, and photography fees.
Repairs and maintenance
It is important not to confuse repairs and maintenance with ‘property improvements.’ Repairs restore damaged items to their original condition, whereas property improvements enhance a property’s value and are therefore treated differently by the ATO.
Further deductions you may be able to claim include depreciating assets (see below), property management and agent fees, insurance (including building, contents, public liability, and income protection insurance), strata fees, council rates, water bills, land tax, certain legal fees, cleaning, gardening and lawn mowing, gas and electricity, pest control, stationary, travel expenses, and Lenders Mortgage Insurance (LMI).
4. Understand tax depreciation deductions
I reckon depreciation is one of the least understood financial advantages for property investors. Many landlords are surprised to learn that they can claim depreciation as a tax deduction over the lifetime of their investment properties.
You can find out what you need to know here: Understanding tax depreciation deductions