Taxation 101 for Your Investment Property

Taxation 101 for Your Investment Property

Yay … it’s almost tax time … said no non-accountant-number-loving-type-person ever!

All that number crunching CAN do your head in … but if you own an investment property … or are thinking of buying one …  being all over the tax implications is a huge priority.

Knowing what you can or can’t claim will save you a lot of strife and stress come June 30 … and will also maximise the benefits that will flow back into your bank account.

There are quite a few boxes to tick … so read on if your investment property is being rented … or is ready to rent. (otherwise it won’t qualify for any deductions)

Adding up the Basics

Let’s start with the pretty straightforward things you can claim:

  • Repairs and maintenance to the property, which must ‘make good or remedy defects in, damage to or deterioration of the property’.
  • Management and maintenance costs, i.e. body corporate fees, water and council rates, cleaning, gardening and pest control fees.
  • Advertising for tenants and property management fees.
  • Insurance premiums, including building, landlord and contents insurance.
  • Interest on bank loans and lending expenses.
  • Your accountant’s or tax company’s fees.
  • Incidentals such as stationery, postage and phone calls.
  • If your property is negatively geared (when your expenses exceed the rent you get) you may be able to claim a deduction for the full amount of rental expenses against your rental and other income.

When You’re in for the Long Haul

Other expenses, like a major renovation, are classed as capital improvements by the Australian Tax Office (ATO):

  • They need to be claimed as capital works deductions, which is worked out on a sliding scale. This is based on the age of your property and can be a little tricky to nail down.
  • You can also claim depreciation for the decline in value of certain fixed items including appliances, carpets and furniture.

What You Can’t Claim

Stop scratching your head trying to think of a way … you simply can’t claim tax relief for:

  • Expenses relating to your personal use of the rental property.
  • Expenses, such as electricity and gas bills, paid by the tenant.
  • Borrowing costs where you have borrowed against the equity in the investment property for private use.
  • If you rent your investment property out for part of the year and live in for the rest of the time, you can’t claim interest paid on the mortgage for the whole year.
  • You can no longer claim the cost of travel relating to a residential rental property unless you are in the business of property investing or are on the ATO’s excluded entity list.

Selling Up?

If you sell your investment property, it’s likely you will be up for capital gains tax (CGT). This government tax applies if you make any profit from the sale of an investment property.

The ATO allows you to offset costs like stamp duty, any legal fees and estate agent’s commission to reduce your profit … and therefore your tax obligation.

The Goal Posts Keep Shifting

Tax laws do keep changing … sometimes every year.  For instance, from 1 July 2019, when you make a payment to a contractor (such as a tradesperson) for work on your rental property, you should check that they have an Australian business number (ABN).

If they don’t provide you with an ABN, you may have to withhold 47% from that payment and pay it to the ATO. (See Withholding from suppliers for details of when you are required to withhold.)

So, the bottom is … not only should you be organised (keep impeccable records of everything), you need to be on the ball.  Here’s a little extra reading courtesy of the ATO and an info sheet they’ve prepared for you.

This best thing you can do is find a tax accountant who are up to speed and will eke out every deduction you are entitled to.

Contact Irusia and she’ll pass you on to someone who is a whizz when it comes to this stuff!