Your investment property at tax time: everything you need to know

The end of the financial year is just around the corner, which means now is the time to gather up your receipts and find out what you can – and can’t – claim as a landlord.

Owning an investment property comes with many tax benefits; your deductions can go a long way in bringing down your annual tax bill, so it’s important to know what you can claim and what documentation you’ll need to provide the tax office.

The Australian income year ends on 30 June, which means you have from 1 July to 31 October to lodge your tax return for the previous income year.

Landlords need to let the Australian Taxation Office (ATO) know how much rent and rental-related income they received over the past financial year. These costs are considered income (on top of any money you earned from employment or other sources) so it’s important it is accurately reported to the ATO. Rental payments are fairly easy to calculate, but don’t forget those related costs too. These include rental bond returns (if your tenant defaulted on rent or caused damage to the property), insurance pay-outs to compensate for any damage, any letting and booking fees you received, and any amount a tenant pays you to cover the cost of repair work. All of this must be declared to the ATO to ensure you provide a clear picture of your income.

Investment property owners can also claim deductions for rental-related expenses. These claims can only be made for periods when the property was tenanted or genuinely available for rent and can only be made for a portion of the expense (so it’s unlikely you’ll get all your money back!)

Deductions can be made for:

• Property management costs (e.g. agent fees and commission and rental advertising costs)
• Council rates
• Land tax
• Body corporate fees and charges
• Maintenance costs: any cleaning, gardening, pest control or repairs at the property, including end-of-lease cleans
• Property loan interest: investors can claim the interest charged on a loan for an investment property, along with any bank fees for servicing the loan.
• Insurance, including building, contents, and public liability
• Legal expenses: any advice or documentation that relates to rental activities is tax-deductible

Make sure you also factor in deductions for depreciation. This refers to claims made for the decline in value of the property and its assets over its lifetime, particularly those you’ve invested in to upgrade or maintain it – think appliances, like dishwashers and air-conditioning, new garage doors and extensions.

Unfortunately, not everything can be claimed – landlords are unable to receive tax deductions on expenses paid by tenants (i.e. electricity bills) or property purchase costs like stamp duty.

Want to get yourself tax time ready? Here’s a few things to consider to make life easier when June 30 rolls around:

• Keep your receipts: keep copies of any income and expenses for your investment property, including records of rent and costs for repairs and maintenance. Create a folder on your desktop or in your email inbox or print everything and store it somewhere safe so you have all the documentation on-hand.
• Engage a tax agent: while it might be an additional expense, getting a tax agent to lodge your claim makes the whole process easier. It takes the pressure of working out what you can – and can’t – claim out of your hands (an often-complicated process!) and ensures you’ve declared all your income and expenses accurately. Plus, tax agent fees are deductible.
• Have your records handy: you’ll need to provide a tax agent or the ATO with key details about the property, including purchase price, along with a copy of the depreciation schedule and any bank statements to calculate interest.
• Read up on negative gearing and capital gains tax: both of these can have an impact on your annual tax return so it’s important to know if they apply to you and how they could affect your claim.

Not sure what you can claim? We can help! Email Edwina Smith or send us a DM via Instagram or Facebook – we’re happy to sit down and talk you through it. Alternatively, visit the ATO website for more information.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances before acting.