It’s that time of year again when many property managers email their landlords about the rental deductions available as tax time rolls around.
COVID-19 may have transformed the market, but little has changed in terms of how the Australian Taxation Office treats investors’ deductions. In New Zealand, there are no capital gains or land taxes, but property taxes are collected and managed by local authorities.
The evictions moratorium in place during the pandemic placed many landlords and lending institutions in unfamiliar territory, but the principles largely remain the same as we slowly emerge.
As a standard rule, if back payments of rents are paid, they will be taxable once received.
Rental bond returns (if your tenant defaulted on rent or damaged the property), repair costs paid directly to you by tenants, or insurance payouts should also be included as part of your rental income.
Likewise, if a bank deferred loan repayments, the interest can still be claimed if the expense is incurred.
In essence, retaining proof of all your income, expenses and efforts to rent your property means you can claim everything to which you are entitled.
What landlords can claim
Each year the ATO sends a friendly reminder to landlords to ensure they are claiming deductions appropriately.
Among an array of expenses, you can claim tax deductions for management costs (such as agent fees, advertising and commission), land tax, body corporate fees, loan interest, insurance (including building, contents and public liability), maintenance costs (cleaning, gardening, pest control and repairs) and depreciation.
Some deductions, such as depreciation, may be limited to specific dates, so check with your financial adviser to ensure your claim is legal.
When in doubt, leave it out
Equally important is not to claim deductions for investment properties that are not genuinely available for rent, such as when they are occupied for personal use.
To minimise the risk of mistakes, the ATO has information on renting out part or all of a home, holiday apartments in commercial residential properties and holiday homes on its website, as well as factsheets on Top 10 tips to help rental property owners avoid common tax mistakes and Borrowing expenses.
As always, be sure to clarify with your financial adviser if you are entitled to claim certain expenses.
The ATO recommends using a spreadsheet, professional software or apps to track your expenses and simplify record-keeping from the time you buy the property.
This should include contract of sale, conveyancing and loan documentation, incorporating legal fees, stamp duty and initial repairs.
This will ensure you know exactly what costs have been outlaid over the term of your ownership and assist should you choose to sell, including the finalisation of any capital gains tax.
(Source: ATO, CommBank, H&R Block, CPA)