The ATO has announced that rental income declarations and deductions will be one of its key priorities this tax season, so it’s more important than ever that Perth property investors get their tax affairs in order.
Here are five key areas that every landlord needs to consider this EOFY.
1. Remember to declare all income generated by your rental property
The ATO has asked property investors to make sure they’re not overlooking any income generated from their rental properties this financial year. That means remembering to declare all the income you received from your investment property this year, including any money you received from short-term rental arrangements, insurance payouts and rental bond money you have kept. If you’re not sure what you need to declare, the ATO recommends asking a registered tax agent, such as an accountant, for guidance.
2. Make sure you’re claiming deductions correctly
This year, the ATO is also reminding property investors to double-check that any tax deductions they claim meet these criteria:
- You spent the money yourself, and you haven’t been reimbursed.
- If the expense relates to a mix of income-producing and private use, you’re only claiming the portion that relates to producing income.
- You have a record (such as a receipt) to prove it.
As a property investor, you may be able to claim costs like:
- Repair and maintenance costs
- Water rates
- Land tax
- Council rates
- Insurance
- Strata fees
- Property management fees
- Accountancy fees
- Pest control
- Gardening
- Cleaning
- Small appliances
- Advertising costs to find new tenants
You must have paid for these costs this financial year if you’re claiming them as a deduction in this year’s tax return.
Remember, preventative and ongoing maintenance not only improves your property’s value and appeal to tenants, but it’s often tax deductible too. Now is an ideal time to carry out those annual checks and safety tasks, like inspecting smoke alarms, conducting a pest or electrical inspection, checking the roof or cleaning out the gutters.
3. Don’t forget depreciation
Property investors often overlook claiming depreciation as a tax deduction because it’s ‘too complicated’. But given that it’s potentially one of the most valuable tax breaks available to landlords, it’s worth looking into. The trick is understanding how to claim for it properly.
Depreciation is the reduction in the value of your investment property over time due to wear and tear. You may be able to claim a tax deduction for depreciation on everything from the property’s structure to substantial renovations to fixtures and fittings like ovens, air conditioning units and carpets.
The simplest and most accurate way to determine your depreciation deductions is with a tax depreciation schedule. This is a report prepared by a specialist quantity surveyor that your accountant then uses to claim depreciation tax deductions on your behalf. Once you have a tax depreciation schedule for your investment property, the same schedule can be used every year to prepare your tax return. If you carry out renovations on your investment property, the schedule can be updated to include depreciation on these works.
4. Keep good records and make sure your tax return is accurate
Noting that it often finds mistakes in declarations relating to rental properties, the ATO is encouraging property investors to make sure they’re keeping accurate and thorough records. The ATO can request supporting documentation, such as receipts or invoices, for any claim you make, even after issuing your notice of assessment.
As all rental income and deductions need to be entered manually as part of your tax return, a registered tax agent (usually an accountant) who understands property investment is an invaluable resource for any landlord. As well as ensuring that your return is lodged correctly and you’re meeting your tax requirements, they can help you maximise your tax deductions by providing advice about what you can and can’t claim.
If you do make a mistake with your tax affairs, at the very least, it may delay the processing of your tax return while the ATO contacts you or your registered tax agent to correct the issue. That means it will take longer for you to receive your refund if you’re eligible for one.
5. Don’t forget capital gains tax
As well as rental property income and deductions, the ATO is also focusing on the accurate reporting of capital gains from property sales this EOFY. It says this is an area that seems to confuse property investors.
ATO assistant commissioner Tim Loh has reminded property investors that they must calculate the capital gain or loss from the sale of investment properties or second homes sold this financial year. The ATO will be scrutinising real estate-related capital gain and loss declarations.
If you’ve sold an investment property this year, chances are you’re liable to pay capital gains tax (CGT). When you sell an asset, such as an investment property, at a profit, you make a capital gain. CGT is the tax you pay on that profit. On the other hand, if you sell your investment property for less than it cost you to buy and improve it, you make a capital loss.
A capital gain (or loss) is considered part of your income for tax purposes. The amount of CGT you pay will depend on which income bracket you fall into. If you owned your investment property for more than a year before selling it, you might only have to pay CGT on half of your capital gain. If you made a capital loss, it might be deducted from your total income for this financial year (or you may choose to carry it forward and deduct it from your capital gains in future financial years).
As with all financial and investment issues, you should always seek professional advice from a registered tax agent or accountant tailored to your situation.
For more information please contact the team at Rentwest today on 08 9314 9888.
(Article by Rentwest).
