Note to property investors: grab a ‘cuppa’ and head into the study, we’re going to look into all the relevant tax deductions you can claim in this year’s return.
We’re also going to note a few ‘grey areas’ where the ATO (Australian Taxation Office) warns you may find your claims being knocked back on technicalities.
On its website, the ATO lists the following property related expenses that can be claimed at tax time:
− Interest
− Accounting Fees
− Body corporate Fees
− Cleaning, gardening and mowing, pest control
− Borrowing expenses
− Repairs and maintenance
− Management fees, agents’ commissions
− Insurance (building, contents, public liability)
− Legal fees
− Mortgage insurance
− Travel undertaken to inspect the property or to collect the rent
− Water charges
− Rates, land taxes
− Property depreciation/capital allowance deductions.
As a property ages, items within it depreciate in value and the ATO allows property investors to claim tax back for this depreciation.
The same goes for a building's structure, which wears out over time and therefore that loss can be claimed.
Some common mistakes made by rental property owners include:
* incorrectly claiming property improvements as repairs when they are actually capital costs, like remodelling a bathroom or replacing a stove
* claiming construction costs as decline in value instead of capital works
* overstating rental deductions by incorrectly apportioning the interest on a loan between a rental property and private use, and
* making incorrect claims for a property that is not genuinely available for rent, or where a property has been available for rent for only part of the year.
Generally you can’t claim rental deductions for private or capital expenses, such as:
* the cost of buying or selling your rental property, like the cost to purchase the property, conveyancing costs and advertising expenses
* expenses not actually incurred by you, like water or electricity charges paid by your tenants, and
* expenses that aren’t related to the rental of the property, like expenses connected to your own use of a holiday home that you rent out for part of the year.
You will need to apportion your expenses if:
* your property is available for rent for only part of the year
* only part of the property is used to earn rent, or
* you rent your property at non-commercial rates.
Keeping good tax records is not only helpful when completing your tax return but is necessary if the Tax Office asks you to provide evidence of your claims later on.
Generally you need to keep records for five years, particularly in relation to:
* any receipts you have received, such as rent
* any expenses relating to rental deductions you have claimed, such as repairs or maintenance, and
* when you acquired or disposed of the property.
If you’re not sure, it is better to keep too many records than not enough.
The Tax Office has several publications on the topic, such as Rental properties and Guide to capital gains tax, which are available from the Tax Office website www.ato.gov.au or by calling 1300 720 092.