With EOFY and tax time fast approaching, make sure you have everything you need to maximise deductions on your rental property. Here are our top tips for investors:
1. An investment property must be rented or “genuinely available” for rental to claim deductions – if you have lived in it for any part of the year it affects what you can claim as a deduction - and how much. For example, furniture can only be included in a depreciation schedule if it’s brand new at the time tenants move in.
2. Don’t miss out on deductions – often the second largest available deduction is tax depreciation. Having a depreciation schedule in place means you can claim the loss in value over time of the building’s construction, along with certain plant and equipment items.
3. Rental expenses need to be apportioned in some situations. This arises in the context of holiday homes, where either you or your family or friends, can stay in the property free of charge for part of the year. To the extent that the expenses relate to that part of the year during which the property is not rented or available for rent, you are not entitled to a deduction for costs incurred during those relevant periods.
4. Keep records and receipts of all expenses and earnings.
5. You can no longer claim deductions for travel expenses relating to inspecting, maintaining, or collecting rent for a residential property.
What you can claim:
Interest
Depreciation (including certain capital works)
Body corporate and strata levies
Management and letting fees
Council Rates
Insurance (including building contents and public liability)
Water and utility costs
Maintenance & repairs
Land tax
Cleaning costs
Gardening and lawn mowing services
Pest control
Security fees
Bookkeeping and tax-related expenses
What you can’t claim:
Expenses of a capital nature or of a private nature
Expenses related to the acquisition and disposal of the relevant property
Expenses that are body corporate payments to a special purpose fund to pay a particular capital expenditure
Expenses which are not actually incurred by the taxpayer (e.g. water and electricity charges paid by the tenants)
Expenses that aren’t related to the rental of a property (e.g. expenses connected to a holiday home that is rented out for part of the year).
Claiming Tax Depreciation
You can claim the loss in construction value of your property as a tax deduction in your annual tax return. This includes the structure itself as well as some capital expenses such as plant and equipment. Having a Depreciation Schedule in place is an essential part of any Investment Property strategy.
A Depreciation Schedule lasts for the life of the property (40 years). You only have to pay one initial tax-deductible fee for the schedule, and then it is yours to provide to your accountant throughout the life of your property.
Only a qualified Quantity Surveyor can prepare a Depreciation Schedule. Once it is in place a Depreciation Schedule can be used to amend up to two previous tax returns to recoup missing deductions. Now is the best time to order your Schedule – if you pay before June 30, you can claim the fee as a deduction in your tax return this financial year.
There can be significant deductions even on smaller properties, and owners of apartments are able to claim Depreciation on a portion of strata common areas.
For a free estimate on the potential deductions available for your investment property, contact Asset Reports today.
