August 03, 2015
When it comes to tax time, a few final checks can ensure you're claiming everything you're entitled to on a rental property.
1. Review your expenses
Investors can legitimately claim a wide range of property related costs as a tax deduction.
To be sure you don't miss any expenses please check with your accountant, and remember, you normally need written proof to claim a deduction.
2. Maximise Depreciation
Depreciation is a valuable non-cash expense, but plenty of investors overlook key depreciable assets. As a guide, you may be able to claim depreciation on the value of the building (depending on its age) and also on a share of common property if you own a strata titled property.
The Tax office likes to see depreciation claims based on schedules perpared by experts such as Quantity Surveyors. Fees paid to have a professionally drafted depreciation schedule can also be claimed on tax, so that's money well spent as well.
3. Get it right with repairs and maintenance
Landlords can make an immediate claim for repairs and maintenance costs. However, be aware of the fine line between a repair and a capital improvement, which must be depreciated over time. If in doubt, speak to your tax professional.
4. Bring forward deductions
If it's likely you will earn higher income in the current financial year than the next year, it can be useful to bring forward some property expenses. This can maximise your current year tax deductions. Consider completing and paying for repairs to your rental property before 30 June. You can usually also claim up to 12 months of interest pre-paid on your loan. You'll need a fixed rate loan to do this, as the interest charge must be known upfront. Note that not all lenders provide this option, so discussing this with your broker is a good idea.
5. Don't be tempted to fudge
Resist the urge to claim more than you are legitimately entitled to. The Australian Taxation Office takes a very close look at rental property claims, and heavy penalties apply if you are caught claiming non-allowable deductions or failing to declare rental income.