5 Tax Tips for Property Owners This Tax Time

Whether you're a property owner or a property investor, the EOFY is an important time to get all your tax ducks in order. Tax time is an important period of the year for all Australians, but with the ATO announcing this year that they are placing a “greater emphasis” on property investments and investors, now more than ever, you should be making sure your claims are in order before filing. To assist, we’ve compiled a tax tips for property owners checklist to ensure some of the key concerns are covered. 

1. Declare full income on investment and rental properties. 

Did you know that more than 1.8 million Australians own an investment property? All Australian property investors will have felt the weight of tougher governmental rental restrictions in the last year which may be leaving you in a world of pain trying to figure out correct protocols. One of the main things you should be doing to ensure you don’t get yourself into hot water is by declaring the income from all real estate sources. This includes part-time shares in properties such as holiday homes and Airbnbs. 

2. Understand the status of your property. 

When evaluating what tax you’re eligible for, ask yourself, what is the status of your property/properties, especially if you are an investor. For example; 

• Are you showing a clear intention to rent the property?
• Are you advertising your property?
• Is your rent set in line with other properties in the area?
• Are your rental conditions reasonable?

If the answer to the above questions are a resounding “yes”, then you may be eligible to claim a deduction for your rental property. Just a word of caution, like with all claims ensure you have sufficient evidence documented to support your claims. 

3. Record all repairs, improvements and construction costs properly 

Keep track of all construction costs, including maintenance and repairs as these may be eligible for tax reductions. 

For example, you can claim a 2.5% deduction of the construction costs for up to 40 years after the completion of a property (or renovation). If you’re not the original owner of the property, it might be worthwhile asking the previous owner(s) to provide information on the history of construction undertaken to help identify what you're fully entitled to. 

4. Avoid “mates rates”

““Don’t include properties that are rented out to friends or a family at a discounted rate,” says Mark Chapman, director of tax for H&R Block.

Investors can only claim deductions on properties that were genuinely rented or available for rent. What does this mean? The ATO will be monitoring for properties that are partially owned or rented out at a much cheaper rate than the neighbourhood average, this often occurs if owners rent out to friends or family members. This is regarded as non-commercial renting and therefore the income from this rent is still taxable and you’ll only be able to claim deductions on the annual amount of rent you receive. Also, it’s with noting that you will not be able to claim a loss on this style of renting and therefore can’t rely on negative gearing if you were to sell the property. (link negative gearing to the other blog) 

5. If your property is newly purchased don’t claim for deductions

If you’ve recently invested in a property with the intention of renting you are not eligible to claim deductions until the end of the first year of ownership. 

“The costs to repair damage and defects existing at the time of purchase, or the costs or renovation, cannot be claimed immediately,” says Chapman.

“These costs are deductible instead over a number of years or added to the cost base of the property for capital gains tax purposes. Expect to see the ATO checking such claims and pushing back against claims that do not stack up.”

Are you still having trouble navigating your claims? Get in touch with Clarke & Humel Property Management experts today.