The end of financial year is fast approaching and with that comes a lot of rifling through shoeboxes and urgent calls to the accountant. If tax time makes you hyperventilate or this is the first time you are claiming on expenses for your rental property, we have a few small tips to help ease the pain.
1. Allocate your expenses correctly
Many investors are unaware of the actual things they can claim and under what allocation. It’s important to ensure you get this correct as a simple mistake can lead to an audit.
- Maintenance/Repairs – Most repairs (fixing an item such as loose wires or dripping taps) and maintenance (extending the life of an item or preventative measures such as gutter cleaning, oiling decks and re-painting) items can be claimed in full as a deduction for maintaining your investment.
- Depreciation – The depreciation method is used when replacing an item with new, this could be carpet, lino, new hot water system or other appliances. This method must be used for assets that diminish with time. This also allows to you claim deductions for several years. You can claim a 100% deduction for each item that is less than $300 per property owner (2 owners means plant costing $600 can be written off).
- Capital works – This is the capital costs of the building and structure, however there are strict rules on how old a property must be. If you do any major works to a property such as a renovation, fencing or garage/carports, you may need to revisit your capital works schedule.
2. Engage a professional
Ensuring you engage the services of a qualified accountant and a licensed property manager will minimise your risk when owning a rental property. Property managers must meet minimum standards in terms of invoices and statements and are required to keep these on file for you. Using a certified accountant will ensure that you are maximising your tax potential on the property whilst still keeping you under the radar of the ATO. Using a depreciation report can also assist with claiming deductions correctly.
3. Don’t be too cheeky
Claiming for expenses that are not allowed will cause red flags on your file. Some common claims are:
- Instant write-off – Don’t be confused with business tax and standard rental income tax. This can be a common misconception even if your rental property is owned by a company, you cannot claim the instant write-off.
- Travel – travel expenses to your property for inspections or repairs are not allowed, even travel to see your property manager is not claimable (exceptions apply).
- Proportion expenses correctly – Make sure you allocate the deductions equally if the property is owned equally.
As a property investor, there are several financial obligations you must meet to avoid an audit by the ATO. These tips are a guide only and we recommend sourcing your own advice suitable to your own situation. Owning an investment property can be a great strategy for your financial freedom if managed correctly.
Keith Hamilton | NTAAF
Director
T: (07) 4613 5400
E: [email protected]
W: www.parallaxaccounting.com.au
PO Box 967, Toowoomba, QLD, 4350
194 West Street, South Toowoomba, QLD, 4350
Written by Keith Hamilton & Rebecca Fogarty
