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The do’s and don’ts for property investors this tax time

By Cameron Micallef 06 July 2021 | 1 minute read

Investors are being told to pay particular attention to the do’s and don’ts this tax time, with those who fail to properly lodge their returns warned they could potentially be thousands of dollars worse off, an industry expert has revealed. 

The do’s and don’ts for property investors this tax time

In a conversation with Smart Property Investment, H&R Block’s director of tax communication, Mark Chapman, explained to investors the key do’s and don’ts this tax time. 

According to the accountant, the key tip is to ensure that property owners keep good records. 

“The golden rule is if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings. Also, be aware that both your income and expenses may look very different to normal because of the impact of COVID-19,” he said.

He highlighted that a tax agent is a “must have” for property investors – they can point you towards those deductions you didn’t know you could claim, can accurately work out what’s deductible and what’s not, while their fee is tax deductible.

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Key deductions investors miss

Mr Chapman noted that property investors often overlook key expenses, which ends up costing them come tax time. 

As well as the obvious deductions like mortgage interest and repairs, you may not know that you can claim for the following:

  • Prepaid expenses. If you pay an item of expenditure this year that wholly or partly relates to next year, you can a claim a deduction for the full amount this year. This is particularly useful with expenses that straddle the tax year, such as insurance policies or subscriptions.
  • If you use your home phone, computer or internet services, or your mobile phone as part of the management of your investment property, you can claim an appropriate proportion as a tax deduction.

Going beyond prepaid expenses, Mr Chapman told Smart Property Investment that investors are entitled to depreciation on the asset. 

“It can also be worthwhile getting a quantity surveyor to quantify the depreciation claims that you are entitled to. Depreciation is generally one of the larger deductions. It is difficult to correctly work out, and many home owners miss out on potential deductions by incorrectly claiming,” he said.

What about the don’ts?

While highlighting the perks investors get this tax time, Mr Chapman also warned investors against attempting to con the taxman.

His tips of things to avoid include: 

  • Claiming excessive interest expenses, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property.
  • Incorrectly apportioning rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than jointly.
  • Claiming deductions for investment properties that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed. This is particularly important for holiday homes, where the ATO regularly finds evidence of home owners claiming deductions for their holiday pad on the grounds that it is being rented out, when in reality the only people using it are the owners, their family and friends, often rent-free. Recently, the ATO issued a list of four questions holiday home owners should be asking themselves; consider your answers to these to determine if you have anything to be concerned about:
    • How do you advertise your rental property?
    • What location and condition is your rental property in?
    • Do you have reasonable conditions for renting the property and charge market rate?
    • Do you accept interested tenants, unless you have a good reason not to?
  • Claiming repairs for newly purchased rental properties. The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years or are added to the cost base of the property for CGT purposes. Expect to see the ATO checking such claims and pushing back against claims which don’t stack up.
  • Incorrectly treating properties that are rented out to friends or family at a discounted rate. This will be regarded as a non-commercial rental. The income will still be taxable but you’ll only be able to claim deductions up to the amount of rent you’ve received. You won’t be able to make a loss; if you were relying on negative gearing, that isn’t a desirable outcome!

RELATED TERMS

Property

Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your... Read more



The do’s and don’ts for property investors this tax time
The do’s and don’ts for property investors this tax time
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