Love it or hate it…. it’s tax time again!! For those out there who love to crunch numbers, keep all their receipts, and can’t wait to submit their tax return this might be an exciting time, but for those out there who aren’t as organised with their records or who are not quite so sure about what refunds they are entitled to, tax time can be a bit of a pain, not to mention a burden. One of the many things I have noticed in my 25 + years in property management is that not all investment property owners know what they can effectively claim for in their tax return, so there could be some real opportunities being missed. Now I must confess, I am no tax expert and as agents we are not allowed to give specialised financial or tax advice, so perhaps view the following as “food for thought”. First things first, if you don’t already have one, invest in a competent tax accountant. Yes, it is an extra cost, but it could be so worth it. I see many landlords going it alone and down the track they realise they had genuine deductibles that they didn’t understand they could claim for. Below I have just noted some points which I would think is quite common knowledge, however I am always surprised when I speak to landlords and find that is not necessarily the case. Now, not all these points may apply to you and of course, as noted above, it is well worth speaking to a tax professional who can assess you on a personal basis, taking into account your specific situation, to make sure you are on the right tax deductible track.
Negative gearing
So, this simply means the property is geared for a negative cash flow return, i.e. the rental income is less than the property expenses. Some might view this as a bad thing, but it can have a positive benefit. If the rental payments are not covering the mortgage payments and other outgoing expenses, there is potential for the property owner to claim this difference or loss as a tax deduction. So many times, I hear from landlords when appraising properties for rent “I need the rent to be $xxxx so I can cover my mortgage”, and whilst the rental market doesn’t really work that way anyway, they have not considered what/if any incentives there may be to them to look into negative gearing.
Mortgage interest
For rental properties, which generally can be viewed as a property being used to make an income, as opposed to the property you live in, it could be possible for you claim the interest charged on your investment loan. With the increases we have seen to rates of late, this could be a great opportunity to explore further.
Expenses
There are many small deductibles which investors can investigate claiming; good news is that I believe property management fees is one of them! Possible items could be things like land tax, strata fees, council rates and insurance. This could add up to quite a bit of money. Repairs and maintenance deductibles may apply if directly related to wear and tear. When reviewing my own returns, I can see that our tax accountant seems to categorise repairs as works completed to fix damage or deterioration, whereas maintenance is generally viewed as works completed to prevent damage or deterioration.
Depreciation Schedules
It is to be expected that when a property ages and gets older, the assets contained within it will depreciate. In some cases, the ATO provides for owners of income producing properties to claim that depreciation as a tax deduction. To do this an investment property owner will need to have a professional company provide them with a tax depreciation schedule. There are many companies out there who offer this service, for example BMT, Deppro, Duo Tax Quantity Surveyors to name just a few. There is no harm in reaching out to a company like this with the specifics of your property details, to see if your property meets the criteria. If you are eligible to claim depreciation it helps to reduce your taxable income, which is an encouraging benefit for you at tax time.
These are just some basic starting points on your tax claimable journey and I hope you spend some time speaking with a professional to see if any of the above could be of benefit to you. You never know, they might even be able to suggest or recommend other tax saving initiatives to you. Let’s face it, we all work hard for our money and being an investment property owner can have its risks, so if you can get a bit of financial relief with your tax return why not, better in your pocket than the tax mans I say!
Written by Stacey Kouroulis – Director of Property Management
stacey@paragonproperty.com.au