The Australian Taxation Office (ATO) has announced some key focus areas for tax time 2022, including rental property income and deductions, and record keeping.
That’s why, as a rental property owner, you (and your accountant) need to ensure that you declare all rental-related income in your tax return (including short-term rental arrangements, insurance payouts and any rental bond money you retain) and work out what expenses you can claim as deductions.
And when it comes to claiming relevant property related expenses, ATO Assistant Commissioner Tim Loh explains “It’s important you…can satisfy the three golden rules”:
You must have spent the money yourself and weren’t reimbursedYou must have a record to prove itIf the expense is for a mix of income producing and private use, you can only claim the portion that relates to producing income – if you have an investment property that isn't rented or available for rent, such as a holiday home, then you generally can't claim deductions because it doesn't generate rental income
So – provided you can satisfy these key requirements – here are some of the top tax deductions you should track and record.
TOP TEN INVESTMENT PROPERTY TAX DEDUCTIONS
1 Interest charged on the investment property loan and bank fees for servicing that loan
2 Insurance You can claim the cost of insuring a rental property, including home Insurance for the costs of repairs if it’s damaged in an insured event, and landlord Insurance for things like loss of rent and malicious damage caused by tenants.
3 Council rates for the periods in which the property was rented
4 Land tax Noting that the levy differs between states, as does the timing of when you may claim the cost, so it’s essential that you make sure you’re claiming the correct amount in the right year.
5 Strata fees if your property is on a strata title, such as an apartment
6 Building and appliance depreciationDepending on when your investment property was built, you may be able to claim a deduction on the depreciation of the building structure and any renovations you’ve undertaken. Likewise, if you’ve installed dishwashers, washing machines, air conditioners, stoves and other assets, you can claim their decline in value as depreciation over the course of the asset’s lifespan, provided they meet set criteria.
7 Repairs and maintenanceYou can claim repairs as an immediate deduction if they relate directly to wear and tear. If you need to replace an appliance you can claim this cost as a depreciation deduction as above. Alternatively, if you replace an item in order to increase the value of the property then you need to claim it as a capital works deduction.
8 Garden maintenance and upkeepThe upkeep and replacement of plants and garden structures can be claimed as an immediate deduction. The cost of any new plants or updates intended to add extra value are deemed as improvements and must be depreciated accordingly. Note that if the maintenance and garden expenses are included as part of body corporate fees then you can’t separately claim these expenses.
9 Property management fees and rental advertising costs Fees or commissions paid to agents for services including rent collection, re-letting properties, finding tenants and associated advertising expenses. A good property manager can also co-ordinate the payment of all taxes, rates and expenses for you, and document them on a monthly statement…and another for end of financial year for you and your accountant!
10 Negative gearingCurrently, investors can offset any losses on an investment property against their assessable income. So if the property’s rental income is less than its expenses, the landlord can deduct the loss from their taxable income…so you pay less tax!
A GOOD ACCOUNTANT IS WORTH SOURCING AND KEEPING!
Keeping track of all of these deductions can become confusing, which is why most landlords engage an accountant – preferably one with investment properties of their own or who is a specialist in the field. The best news is that you can also claim the cost of the preparation of tax returns, advice, and expenses incurred for management of your investment property!
Here at The Property Mentors, we’re privileged to work with some highly talented, investment-focused accountants, financial planners, financial advisors, property managers and more. They bring together a wealth of knowledge and experience, working together to deliver successful results seamlessly to our members.
So if you’re ready to start building (or growing) your property portfolio and would also like to be introduced to our wider team of partners and advisors, then it’s time to take action by booking in a discovery call with one of our dedicated property mentors today!
