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Rental property claims needn’t be a taxing experience

Conceptual image of the process of renting a property
4 min read
Completing a tax claim accurately is key to avoiding unwanted ATO scrutiny. Photo: Shutterstock

Rental property claims needn’t be a taxing experience

API Magazine spoke to property investment tax expert Leah Oliver, who shared 20 tips and a whole lot of advice to make the end of the financial year less daunting.

As any successful property investor will attest, making an income from rental properties is not an armchair ride to riches. 

It takes time, involves significant risk management and can get complicated – especially around the end of the financial year. 

Many Australians rightly view property as a vehicle to achieving financial freedom, and with one of the world’s friendliest real estate tax regimes for investors, it can indeed offer rewarding financial returns.

While Australia’s tax laws in relation to property investment may be supportive, they are anything but simple. To help investors through the tax maze that can spell the difference between positive and negative cash flow, Australian Property Investor Magazine spoke to Leah Oliver, founder of Minnik Chartered Accountants, who shared insights and tips on preparing for the end of the financial year.

Landlords often come under scrutiny from the ATO when lodging tax returns, so it is important they complete their claims accurately. 

Leah’s Top 20 Tax Tips, interspersed throughout this article, are an invaluable guide for all investment property owners.   

  1. Understand how your property investments are performing, and maximise your deductions using XERO Cashbook (or similar software packages)
  2. Support your software file with necessary substantiation
  3. Prepare an electronic file for your accountant, including all documents
  4. Review real estate agent rental statements for accuracy
  5. Ensure all deductions are included in rental statements, e.g. advertising for tenants

“The amount of rental income an investor can expect to claim depends very much on the earning power and age of the property, and whether the property is debt funded, or geared, but on average, for positive property investments without debt and no depreciation, you can expect to claim at least 30 to 40 per cent of income,” Ms Oliver said.   

“Where the property is built within the past 5-10 years, there may be depreciation claims to account for that can enhance claims to approximately 60 to 70 per cent, depending on asset value and the extent of structural works.

“For a negatively geared property, you’re generally looking at around 100 per cent.”

  1. Obtain copies of invoices for assets purchased or repairs carried out
  2. Obtain a depreciation report for relatively new or renovated properties
  3. Obtain strata statements, if applicable
  4. Gather loan statements for recently purchased geared properties to calculate borrowing costs
  5. Gather loan statements for all geared properties for the calculation of interest deductions

Ms Oliver identified a series of common pitfalls that she’s seen in her industry that property investors succumb to, centring on a lack of planning, focusing on less significant aspects of the investment, and rushing decisions.  

“On the planning front, there may be opportunity to liquidate weak investments that may be draining stronger ones.  

“A resulting gain may utilise a carry forward loss, or alternatively a resulting loss may absorb a current year capital gain.  

“Perhaps it is wise to hold on to an investment until after 30 June if other income in the current year is high — the important thing is to be aware that substantial tax savings enhance a wealth position over time with careful research and planning.”

Ms Oliver said too many investors go into their purchase(s) at high premium prices, attracted by sales pitches for everything shiny and new, the benefits of depreciation tax claims, and real estate promises of high rental returns.  

“Investors need to be focused on capital returns over rental returns and in a stable market we make our money on the way in.  

“Capital growth is all about securing a bargain in a secure growth location —  we see too many investors overextend on debt simply to pay too much for their purchase and allow tax savings on depreciation, for example, to sway their decisions over the strength of the asset itself.

FOMO is a potent force in the property market today as prices are rising but it is not the foundation of a sound business decision.

“Clever investors don't compare themselves to anyone, and they obtain the right advice,” Ms Oliver said. 

“Just because it is tax time doesn't mean you have to make a move; it simply means you need to be aware of potential tax savings available to you at this time.  

“Taking these up is a personal choice very much dependent on your specific circumstances and always secondary to wealth decisions.”

  1. Obtain statements for council and water rates
  2. Obtain statements for insurances
  3. Obtain land tax assessment notice, if applicable
  4. Gather invoices from tradesmen, gardeners, cleaners, pest control etc
  5. Prepare details of office related deductions in relation to your properties

State taxes, duties and levies may differ by state, for example land tax and stamp duty, body corporates, council rates etc, but income tax, GST and other taxes are national.

Ms Oliver recommended that for multiple properties, it was best to seek expert guidance. 

“When you engage your accountant, advisor or tax specialist, ensure they are digital driven and tech savvy,” she said.

  1. Prepare details of property inspection travel costs and diary records
  2. Prepare details of unforeseen circumstances, e.g. legal dispute or natural disaster
  3. Prepare details of other sundry items not mentioned above
  4. For properties purchased in the financial year, obtain a copy of settlement statement and contract of sale (purchase date)
  5. For properties sold in the financial year, obtain a copy of:
    • contract of sale (sale date)
    • settlement statement and contract of sale (original purchase date)
    • details of unusual circumstances during the life of the property, e.g. principal place of residence considerations or changes to original cost base.

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