Perhaps Benjamin Franklin was right when he made the statement,
“In this world nothing can be said to be certain except death and taxes.”
And as it’s nearly tax time again, it’s vital for Landlords to begin getting their financial house in order. This means that those all-important records, receipts, invoices and statements need to be organised and up-to-date to ensure you maximise your deductions for each investment property within your portfolio.
In addition to this, it’s vital to know what you can and can’t claim as an expense on your property.
At the same time, it also pays to be aware of the most common mistakes Landlords make when compiling their tax returns.
To assist you with this, we’ve put together a selection of quick End of Financial Year checklists for maximising your potential tax benefits, plus we’ve outlined some of the most common tax related pitfalls to avoid.
What can you claim?
Firstly, the ATO states that you are entitled to claim those expenses which you incur whilst deriving your rental income, as tax deductions. These deductions fall into 2 distinct categories:
- Immediate deductions are those expenses which are claimable in the income year in which the expense is incurred.
- Longer term deductions are those expenses which you are entitled to claim over a number of income years.
Immediate Expenses may include:
- Advertising costs to find tenants.
- Accounting and book keeping fees.
- Bank fees and charges.
- Body Corporate Fees.
- Cleaning, Gardening and Mowing Costs.
- Council Rates, Land tax and Water and Sewerage charges.
- Insurance for your property and landlord cover.
- Interest on Related Loans.
- Legal Expenses.
- Maintenance, Repairs and Servicing.
- Pest Control.
- Property Management fees.
- Quantity Surveyor fees.
- Security costs.
- Stationery and Postage.
- Travel and car costs when inspecting your property.
- Utilities such as electricity, gas and charges for phone calls.
Longer Term Deductions may include:
- Borrowing expenses.
- Depreciation of approved items as per your Depreciation Schedule (if you don’t have a Depreciation Schedule for your rental property, we recommend that you contact us to arrange one as soon as possible).
- Capital works deductions or building write-offs.
Non Deductible Items
On the other hand there are some items which are not considered to be eligible as deductions, these are deemed to be Non Deductible Items and include:
- Acquisition and disposal costs of your investment property, including purchase cost, stamp duty on the transfer of property, advertising charges, conveyancing fees and disbursements.
- Expenses paid for by your tenants, such as such as water or electricity charges.
- Expenses relating to the private use of a property such as a holiday home or your main residence.
Mistakes to Avoid
As well as keeping abreast of your eligible deductions, there are also a few usual suspects and common tax pitfalls to bear in mind whilst completing your returns. These include non-compliance with the ATO’s requirements by:
- Understating income and rental returns. It’s wise to ensure that your returns are accurate, as the tax office conducts routine audits and data matching to confirm that self-assessment is correct and harsh penalties apply.
- Overstating rental expenses and claiming deductions on investment properties which are not actively available for rent.
- Claiming interest deductions on loans which are not 100% investment-related.
- Claiming on travel expenses to inspect your investment property when the travel is also for private purposes.
- Including initial works, such as painting when you first purchase the property, as repairs or maintenance costs instead of adding these as part of the property’s base cost.
- Including items on your Depreciation Schedule which are not tax deductible.
- Incorrectly claiming your costs of borrowing as these are long term expenses which are deductible over the loan period or 5 years.
- Failing to declare capital gains made on sale of investment properties, holiday homes and vacant land.
- Inaccurately calculating the amount of capital gain or capital loss on a sale.
- Claiming a main residence exemption which is not where you actually reside.
- Claiming deductions for capital works which exceed the construction expenditure.
Wishing you all the best for the end of your financial year and if you have further questions, please contact our Senior Property Manager, Jessica Trout on 0424 961 930. We’d love to hear from you.
It’s important to note that we provide this information as a guide only. In all instances regarding investment property deductions and tax issues we recommend that you speak with a qualified investment specialist, your Accountant or undertake enquiries of your own to determine which items may be applicable to your individual circumstance.
