If you have an investment property you are renting out – we want to make sure everything is claimed properly in your tax return.
The ATO has stated rental deductions are a top priority in its auditing program.
We have created this checklist you can use, to ensure you are managing your rental property correctly. It will help you keep the right records to ensure you can claim everything you are entitled to – and nothing you aren’t!
1. Keeping the right records
You must keep written evidence of your income and expenses. This is so you can claim everything you are entitled to.
Side note: even though you can’t claim expenses on your holiday home, it is still important to keep all your records, especially for expenses such as
- bank interest
- rates
- insurance
- repairs and maintenance
2. Make sure your investment property is genuinely available for rent
You must be able to show a clear intention to genuinely rent the property in order to claim a tax deduction.
For example, it must be advertised properly and can’t be available only at odd times. This also means that your deductions must be prorated to allow for any private use.
3. Claiming the right portion of your expenses
If your property is rented to family or friends for below market rate rent then you can only claim deductions up to the amount of the rent you received ie you cannot make a loss for tax purposes.
The excess deductions get added to the cost base for CGT purposes on sale.
If you need to rent out a property for less than market rent then talk to your accountant.
4. Getting initial repairs and capital improvements right
You can’t claim initial repairs or improvements if you knew they needed doing when you bought the property.
This means they are not deductible if they are incurred in getting the property ready to rent out (rather than tenant wear & tear). However, they can be added to the cost base to reduce the capital gain on eventual sale.
If you want to do significant repairs or renovations to your property don’t hesitate to contact us to confirm how much will be deductible.
5. Getting construction costs right
You can claim a Capital Works deduction over time for certain building/construction costs, including extensions, renovations and structural improvements.
If you are buying a property built after 1985, give us a call to talk about how to maximise your Capital Works deduction and what records you need to keep.
6. Claiming interest on your loan
You can only claim interest on money borrowed to buy or maintain/improve your rental property.
If you redraw money from your rental property loan for private purposes the interest will need to be pro-rated for tax purposes.
If you are looking for finance to buy a new rental property, want to refinance or simply want to make sure you have the best interest rates possible give Justin Cornock at Everalls Finance Broking a call.
It’s a free service for our clients!
7. Claiming borrowing expenses
If your finance application/borrowing expenses are over $100, the deduction is spread over five years.
If they are $100 or less, the full amount can be claimed in the same income year you incurred the expense.
8. Co-owning a property
Rental income must be declared and expenses claimed according to your proportion of the legal ownership of the property.
If you are buying a new property, talk to your accountant about the most tax effective way to structure the ownership of the property.
9. Claiming purchase costs
You can’t claim any deductions for the costs of buying your property like stamp duty and legal fees (unless the property is in the ACT).
When you sell your property, these costs form part of the cost base of the property for CGT calculation purposes upon sale.
10. Getting your capital gains right when selling
It is the date of Exchange of Contracts (not Settlement) that determines which financial year the capital gain gets declared in. So please be careful and make sure you give us the relevant information for the correct tax return.
If you make a capital gain when you sell, the taxable part of the gain gets included in your tax return for that financial year.
If you make a capital loss, the loss gets carried forward to be offset against any future capital gains.
At DFK Everalls, we have been helping businesses & investors for 50 years.
We want to empower you with information and help you achieve all your financial goals.
So, if you have any questions about investment properties including whose name to buy them in, how to finance or refinance them or what you can claim please don’t hesitate to get in touch.
