As we move into the new Financial Year, it’s a good time to collect together all the paperwork relating to your investment property portfolio to ensure you gain maximum tax advantage. There are many opportunities for investors to minimise their tax through offsetting rental property expenses: depreciation, outgoings, interest rates plus capital works. However, there are a number of common mistakes that investors make, and the Australian Tax Office has warned that they’ll be keeping a close eye on negative gearing tax claims this year. So here are a few tips to help you maximise benefits without attracting unwanted ATO attention!
1. Keep receipts for all expenses for at least 5 years and keep receipts for everything to do with the purchase of the property (legals, lending fees etc) and major capital works (renovation etc) until you sell.
2. Make a clear distinction between what you can claim this financial year (management and maintenance costs relating to renting the property) and what you must claim over the long term (borrowing expenses, depreciation and capital works). A common mistake is confusing repairs and maintenance with renovation. Information on what you can claim now and what you can claim over the longer term is available here.
3. Other common mistakes, according to the ATO, are claiming expenses you didn’t actually pay (such as water costs paid by tenants) and claiming full expenses when the property was used for personal enjoyment for part of the year or is in joint ownership.
5. Don’t forget to depreciate! Almost every item in a property has an agreed depreciation allowance and length of time over which its value is depreciated– even things like the garden shed, ceiling fans. The building materials themselves can even be depreciated, and apartment buildings gain depreciation benefits for common areas as well as your apartment. Many new properties will have a depreciation schedule prepared by the builder, or use a specialist such as BMT Quantity Surveyors – the cost is tax deductible and they’ll let you know if your building is too old to make depreciation worthwhile.