5 tax tips every Australian property investor needs to know this financial year
As we reach the end of the financial year, Australian property investors need to work out what they can claim and make sure to organise their receipts.
Australia has very generous tax deductions for property investors. The ATO treats your investment like a business and that means your investment expenses can be claimed as tax deductions, helping you minimise your income tax bill.
The current financial year ends on 30 June, which means now is a great time for investors to make sure they're tax ready.
"The ATO has indicated that it will be cracking down on rental, holiday and investment properties, among other verticals, in 2021 tax returns," said Director of Aus Property Professionals Lloyd Edge.
"They've outlined excessive expense claims and incorrectly appointing rental income and expenses between owners will be under the microscope. So, it's important to be fully equipped with the right information and tools."
Here are 5 essential tips for property investors at tax time.
1. Work out exactly what you can and can't claim
Claim as much as you can, and don't miss a thing. That's :Different's head of leasing Kasey McDonald's biggest investor tax tip.
"Everything from the more obvious expenses, like council rates and landlord insurance, to the more obscure ones, like loan establishment fees. Not claiming the right expenses can cost property owners hundreds or even thousands of dollars on their returns."
Investors can claim the cost of repairs and maintenance, loan interest charges and fees, legal expenses and the decline in value of depreciable assets in the property such as carpets, curtains and dishwashers.
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2. Keep records of everything
"If you invest in a rental property or rent it out, you'll need to keep records right from the start so you can work out what expenses you can claim as deductions and ensure you declare all your rental-related income in your tax return," said Edge.
If you're claiming expenses related to items you've purchased for the property, you'll need receipts for those.
"While your tax accountant will be across all the finer details, your property manager also plays an important role during tax time and should be providing you with all the relevant documents you need for your property," said McDonald. An end of year statement should detail items such as the total rental income for the year, total fees paid to the managing agent, out-of-pocket expenses like council rates, water and maintenance work to the property.
3. Complete property maintenance now
With the end of the financial year approaching, any necessary maintenance work or repairs you carry out before 30 June are expenses you can claim sooner. If not, you'll have to wait another 12 months to claim these costs.
4. Declare all your rental income – including rental bonds
Property investors need to declare all the income they've generated from their property. And Edge says that includes not just rental income but also any "rental bond money you become entitled to retain, for example when a tenant defaults on rent or you incur maintenance costs and insurance payouts in some circumstances."
If applicable, this could even include letting or booking fees you charge for use of the property.
5. Understand how depreciation can work for you
Depreciation is "another key area that is commonly overlooked," says McDonald. A depreciation schedule is a report that outlines the decline in value of certain assets within a property, such as carpets, appliances, plants and equipment.
"Property owners can claim depreciation from the wear and tear of these assets. This depreciation can be claimed in your tax return each financial year and can help you save thousands."
You can use a qualified quantity surveyor to prepare a depreciation report for you.