Year End Tax Tips for Investment Property Owners

As the end of the year rapidly approaches, why pay more tax than you need to. Let’s look at some Tax tips and traps that you can look at before the 30th June that may save you a few dollars and an ATO audit.

Rental property owners are on the target list again. The advice is pretty stock standard and highlights some common mistakes and areas that the ATO will be looking at such as:

  • renovations claimed as repairs – such as remodelling of bathrooms and kitchens
  • claiming too much interest on loans that also have a private component;
  • claiming the full cost of an inspection visit to your property when it is combined with a private purpose such as a holiday;
  • claiming full deductions for properties when it is only available for rent part of the year and used as your holiday house for the rest of the year;
  • claiming the cost of land as a capital works deduction; and
  • claiming depreciation on assets such as fixtures, when instead they are capital works deductions.

To ensure that your get the maximum claims for Depreciation and Capital Works deductions, you should ensure that you have a Quantity Surveyors report, especially if your property is fairly new.

If you prepay a rental property expense such as insurance or interest on borrowed funds, you can claim up to 12 months prepayments. This is particular handy if you have sold a property this year and have a capital gain. Ensure you speak to your finance people first before prepaying interest as some loans do not have this prepay interest facility.

From 1/07/2017 travel expenses to inspect, maintain or collecting rent for residential rental property investors cannot be claimed as a tax deduction by investors.

Expenditure for repairs you make to the property may be deductible. However, the repairs must relate directly to wear and tear or other damage that occurred as a result of renting out the property. Repairs generally involve a replacement or renewal of a worn out or broken part. Confusion often arises when the whole item is replaced and this is often treated as capital and not deductible.

If you have sold a property this year just remember that the contract date is the date for Capital Gains calculations not the settlement date. We find many clients fall into this trap and all of a sudden have an unexpected tax issue.

To assist you in claiming all of your expenses refer to the “Useful Documents – Rental Property Checklist” on this page.  It is a fairly extensive list and some may not apply to you, however it may also remind you of a few expenses which you have forgotten to claim.