With the tax office doubling rental deduction audits in 2019, it is more important than ever that investors are making accurate and relevant claims on their tax returns.
It is estimated that one in ten returns will contain errors in the 19/20 year.
Below are eight useful tips that can assist you as you lodge your tax return.
Keep your records.
As with any sort of claims, accurate records must be kept so that you can claim everything you are entitled to.
Particularly when conducting repairs or renovations, it is vital that you retain all receipts and proof of payment.
Make sure your property is genuinely being rented.
You need to have proof that your property is actually being rented out, or that you are trying to rent it out.
In order to show a clear intention for renting the property, you may need to provide evidence of advertisements showcasing the property.
You also need to ensure that you’re asking rental rate is in line with similar properties, and you need to avoid unreasonable conditions such as no kids allowed in a family friendly location.
Only claim the portion that is related to genuine rentals.
This mistake is typically made by owners of holiday home rentals.
If you are renting your property to friends or family free of charge, you will be unable to claim deductions for that period of time. Similarly, you cannot claim deductions during periods of personal use.
Deductions can only be made when the property is genuinely being rented out for a price.
Correctly portion co-owned properties.
If you are a co-owner to your rental property, you must only declare rental income according to your legal ownership of the property.
Joint tenants will have an equal split of the property, but tenants in common may have varying ownership rights.
Claim repairs and capital improvements accurately.
Repairs related directly to wear and tear can be claimed in full in the same year you incurred the expense. This also applies for damages, like repairing a cracked roof or a faulty plumbing system.
If the repair of a damaged item costs more than $300, the cost will need to be depreciated over a number of years.
On the contrary, initial repairs made to the property upon purchase cannot be deducted immediately. This includes work such as replacing light fittings or repairing damaged floor boards before new tenants move in. These costs should be incorporated to analyse your capital gain or capital loss when eventually selling the property.
Do not claim purchase costs.
The costs associated with buying your property cannot be claimed as a deduction. This includes conveyancing fees and stamp duty.
Instead, these relevant costs are used when you sell your property to analyse whether you need to pay any capital gains tax.
Claim loan/ borrowing expenses correctly.
Borrowing expenses can be any relevant costs associated with establishing your loan, such as title search fees and costs of preparing and filing mortgage documents.
If your borrowing expenses are more than $100, the deduction must be spread over five years. If they are less than $100, you can claim the full amount in the same year you incurred the expense.
In regards to interest on your loan, this can be claimed as a deduction.
Be careful with capital gains calculations.
When selling your property, you will calculate the costs of purchasing/improving the property vs. what you received when selling it.
If you make a capital gain, you will need to include that in your tax return. Capital losses can be carried forward and deducted from capital gains in future years.
Get in touch with a property tax specialist
The easiest way to ensure your property claims are accurate is to engage with a qualified tax agent that understands relevant property tax law.
Our property investment tax services have always been in demand and we are seeing an increasing number of people turn to property investment and development as a complementary or alternative form of investment.
One of our property tax accountants will ensure that your questions relating to capital growth, tax benefits and future retirement are answered.