As an owner of a rental property, the last thing you want to do is make a mistake when it comes to tax time. Reason being, it could see you issued with a please explain letter or perhaps something much worse from the Australian Taxation Office (ATO).
Here is a brief overview of what you can and can’t claim as a property investor and what could happen to you if you do get it wrong.
There are certain items or expenses as a property investor you can claim immediately, other expenses that you can claim down the track and certain expenses you cannot claim at all. Here’s what you need to know.
Below is a list of property related expenses that you can claim an immediate deduction for on your rental property:
Some expenses associated with owning a rental property can only be claimed over a period of time. There are 3 main types of these expenses which include:
a) building changes or adding an extension – such as adding a room, creating another storey or a garage
b) cosmetic changes– such as adding or removing internal walls
c) structural improvements – such as adding a pergola, swimming pool or erecting a fence or retaining wall.
When you buy and/or sell an investment property there are certain costs incurred, which are called capital expenses.
As a property investor, you can include these expenses when calculating the ‘cost base’ of your property. In other words, what it cost you to purchase and improve the property over time.
These expenses help to reduce the amount of capital gains tax (CGT) you may be liable to pay when it comes time to sell your property.
Examples of typical capital expenses include:
In this year’s federal budget some changes were made to tax rules for property investors, effective for the 2018 financial year.
Here is an overview of the two main changes:
In addition to these, as a property investor you also cannot claim the following as expenses:
According to the ATO, there are some common actions and penalties you will face if you are found to have incorrectly claimed expenses relating to your rental property, such as:
Unless you’re a tax expert yourself, keeping on top of all the relevant tax rules can be cumbersome and time consuming. Not to mention risky.
My best advice to property investors is to hand it over to a tax expert who specialises in the area of rental properties. That way you can be rest assured you will be in good hands and quite possibly claiming even more than you realised you could.
A nice added bonus is that the cost of the advice itself is tax deductible. Which is a win-win situation in my view.
Don’t know a good tax accountant? That’s ok. I know a few really good ones. Get in touch and I will happily provide you with their details.
You should note that the information in this article is general and of a summary nature only. Tax law is a very specialised area and I recommend you consult a registered tax advisor or accountant in relation to what applies to your own individual situation and circumstances.
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Shelley Horton is the founder of Sydney based exclusive buyers agency Albion Avenue. With a 20 year career honing her skills in every aspect of the property industry Shelley knows what makes a property worth buying and how to get the best deal.
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