Tax time tips for property investors

BY BMT TAX

The Australian Taxation Office (ATO) has announced it will be using a new data-matching program to prevent landlords from incorrectly claiming tax deductions and failing to declare rental income and pay capital gains tax. In this article, BMT discusses some common mistakes that property investors should refrain from making at tax time.

Incorrectly Calculating Personal Use

Tax deductions are only available for the period the property is genuinely available for rent. When a property is not genuinely available for rent, for example when it is being used privately, tax deductions cannot be claimed. However, investors can claim pro - rata depreciation deductions for the period their property is rented out or is genuinely available for rent. This is particularly relevant for owners of holiday houses who also occupy the property privately.

Property investors should not claim deductions for expenses related to personal use of the property or claiming deductions for expenses that were not actually incurred. Travel expenses are a good example, since they are often claimed incorrectly. To claim travel as a tax deduction the trip must be for the sole purpose of travelling to and from the investment property. So, if a property investor is checking on their property on the way to a holiday destination, these costs aren’t eligible to be claimed.

Not Claiming Tax Deductions Correctly

Investment properties generate thousands of dollars in tax deductions each year, and claiming all tax available deductions minimise your taxable income.

The table (to the left) outlines many of the tax deductions available to investment property owners. Keeping record of all expenses related to managing and maintaining an investment property not only makes tax time easier but is a way to prove costs in the event of an audit.

Failing To Report All Income

Property investors must report all income earned from an investment property on their tax return. This includes all rental payments, bond money if retained, some types of insurance payouts, government rebates and money paid by tenants to repair damage.

Failing To Claim Depreciation

Failing to claim depreciation is the biggest mistake an investor can make. This is because depreciation is a non-cash deduction and the second-biggest tax deduction after loan interest.

Depreciation is the natural wear and tear of a property and the assets within it. The ATO allows owners of income-producing properties to claim this as a tax deduction. Depreciation is claimable in two categories. Capital works (Division 43) deductions are claimable on the building’s structure and assets permanently fixed to the property. Plant and equipment (Division 40) depreciation is claimable on the easily removable or mechanical assets.

Claiming depreciation allows investment property owners to lower their taxable income while boosting cash flow.

BMT Tax Depreciation conducts physical site inspections to ensure that all depreciation deductions are identified correctly and claims are maximised compliantly.

To find out more about the deductions within an investment property call BMT on 1300 728 726 or request a quote.

To ensure compliance with ATO rulings and regulations, we recommend that property investors seek advice from an accountant.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit bmtqs.com.au for Australia-wide service.