Managing an investment property can sometimes feel like a chore, especially when tax time rolls around. However, spending that little extra time preparing for your tax return can pay off, big time.
As the Australian media tycoon Kerry Packer famously said, “Of course, I am minimising my tax, and if anybody in this country doesn’t minimise their tax, they want their heads read.” In other words, don’t give more money to the ATO than you need to. Let’s explore how to “beat the tax time game” and ensure you get the most from your investment property.
The game of deductions: what can you claim?
When it comes to your tax-deductible investment property, expenses fall into three main categories:
1. Immediate deductions – expenses you can claim in the year you incur them:
- Advertising for tenants
- Body corporate administrative fees
- Council rates, water charges, and land tax
- Cleaning, gardening and lawn mowing
- Pest control
- Insurance (building, contents, public liability, loss of rent)
- Interest expenses
- Pre-paid expenses for services occurring in a later year (under $1,000 or for a period of 12 months or less)
- Property agent’s fees and commission
- Repairs and maintenance
- Legal expenses related to managing your rental property
2. Deductions you can claim over several years
- Borrowing expenses: Loan establishment fees, lender’s mortgage insurance, title search fees, and more.
- Capital expenses: Costs for building, improving, or substantially renovating the property.
- Capital allowances: Depreciation of assets like appliances or furniture
3. Non-deductible expenses
Don’t get caught out thinking you can claim every expense relating to your rental property. If you think of taking a creative approach to interpreting the ATO’s rules, think again. Here are some of the expenses that you can’t claim:
- Principal repayments on your loan
- Stamp duty on the purchase of property
- Legal expenses for purchasing the property
- Expenses paid by tenants, such as water or electricity
- Acquisition and disposal costs, like conveyancing and advertising
- GST credits for residential rental properties
Staying within the guidelines: what to watch out for
While it’s fun to see how much you can claim, it’s crucial to stay within the ATO’s guidelines. The ATO has warned investors are in their sights, with one of their key focus areas this year being inflated claims for rental properties. This announcement follows data showing that 9/10 rental property owners are making errors in their tax time returns – eek! Here’s how to stay compliant:
- Evidence is key: Ensure you have proof for every expense you claim. This includes receipts, invoices, and bank statements. The ATO may ask for these documents, so keeping them organised is essential.
- Don’t fudge the numbers: While it might be tempting to “estimate” some expenses, the ATO can verify your claims, and discrepancies can lead to penalties.
- Think like a business owner: Treat your investment property like a business by assembling a team to help you maximise your returns. A good tax accountant is invaluable for navigating the complexities of investment property tax deductions. The best part? The costs of hiring an accountant are tax-deductible too, so it’s a win-win!
By approaching tax deductions with a strategic, game-like mindset, you can turn tax time into an opportunity to maximise your investment property’s potential. Remember, it’s not just about what you can claim, but how you manage and document those claims. So, gather your team, stay informed, and play to win!
At Prudential Real Estate, we strongly recommend you seek professional advice from your accountant or financial adviser. The content of this blog is general in nature and should not be taken as personal advice. Always consult with professionals who can provide tailored advice for your specific situation.
Looking to make the most of your investment property? Contact Prudential Real Estate for guidance and support. Our team is ready to assist you in navigating the market and achieving your real estate goals.
Prudential Real Estate Macquarie Fields | (02) 9605 5333 | macquariefields@prudential.com.au
Prudential Real Estate Narellan | (02) 4624 4400 | narellan@prudential.com.au
