By Tina Zawila
The latest published data from the ATO revealed that 2.24 million Australians (or around 20% of the 11.4 million taxpayers) owned an investment property in 2020-21. That means that 1 in 5 taxpayers will declare rental income and expenses in their annual income tax return.
The ATO recently published their “Top 10 Tips to help rental property owners avoid common tax mistakes”.
In this article I will cover what I see as the top tips for getting your rental return right.
We often find that taxpayers misunderstand repairs versus improvements. Initial repairs cannot be claimed as a deduction and instead form part of the cost base for Capital Gains Tax purposes (although a capital works deduction may be available). If you are able to make a claim on an insurance policy for repairs, the amount received is assessable income.
Assets that cost less than $300 can be immediately deducted. This limit applies to each owner, therefore, if the asset is $599 and the property is jointly owned by two taxpayers, it can be claimed in full. However, if the asset is part of a set, or is identical to another asset bought in the same income year and the total exceeds the $300 limit, then it must be combined and depreciated.
Interest on the loan – if the loan has been used solely for the rental property, the interest is deductible in full, however as soon as the loan is used for another purpose, it must be apportioned. The most common example here is the use of a redraw facility or a line of credit. Please seek advice from your tax agent before you ‘muddy the waters’ when it comes to your rental property loan.
Travel expenses associated with your rental property are no longer tax deductible. You cannot claim the costs of travel (flights or motor vehicle expenses), accommodation and meals when you visit your rental property even if you are inspecting, maintaining or collecting rent (unless you are carrying on a business of letting rental properties).
If you are renting a holiday home (that you also use from time to time) or if you are letting your property at “mates rates”, then an apportionment of rental deductions is required for personal use, or discounted rental income.
Finally, one of the most important things to do is to keep good records to support your claims including the obvious income and deductions, but also, the purchase records of the property (as you will need these when you sell to calculate any capital gains or losses), records of when the property was advertised for rent (particularly if there are any gaps when it was unoccupied), and any other key dates (for example if you live in the property for any period of time).
If you own a rental property, it is worth seeking professional tax advice to ensure that your income tax return is correct, and that you are not missing out on deductions, but also not inadvertently making yourself a target for the ATO.
The team at UHY Haines Norton CQ is here to help. Call us today on 4972 1300.