A quick guide to investor expenses at tax time

As we reach July 1, the attention of a lot of property investment owners turns to tax returns and what they are and are not able to claim. 

There are several small but important misconceptions about property investment that can catch out new or would-be landlords.

The Federal Government provides attractive financial incentives for property investment, and you don't want to miss out on those benefits. But it can be easy to get it wrong and find yourself with a nasty letter from the Australian Tax Office, especially on the issue of interest expenses. 

That's why it's advisable to obtain professional financial advice and use a professional property management team to take away the day-to-day hassle and worry of being a property investor and provide you with the regular reports to make the end of financial year a breeze. 

Below are a few common misunderstandings below about interest expenses; 

According to the ATO, while interest and loan expenses may be claimable, there are strict rules around this. You can't claim a deduction for interest expenses:

For any period that you used the property for private purposes, even if it's a short period. Be sure to nominate any period with your adviser or tax consultant to comply with legislation.

You can't claim any portion of the original loan that you hived off to pay or service another debt, buy a new car, a new washing machine, or be placed straight into your superannuation account. That remains true even if you're ahead in your repayments

You cannot claim on a separate property loan for which you've used your rental as security unless that second property produces income.

Keeping great records is the key to submitting an accurate return. Also using a professional property management team like Abode Peninsula also helps! 

Tax records every investor needs to keep

Any experienced property investor will testify to the importance of record-keeping to ensure they gain all the tax advantages the government offers the nation's landlords.

As experienced local agents, we always recommend investors work with a property manager and a financial adviser to ensure all their tax bases are covered. You don't want to miss out on any benefits or get stung by an unexpected ATO bill.

If you're thinking of buying an investment property – and it's an opportune time to be looking right now especially for units or apartments – then take note of the critical records listed below that you'll need to keep.

Our professional Abode Peninsula property management team is a leader on the Mornington Peninsula and will cover records relating to the day-to-day expenses, such as repairs and maintenance. Still, every landlord should understand the principles and financial elements of property investment.

You should always keep at hand documents such as your mortgage papers and insurance, the contract of sale, and receipts for the purchase of depreciable assets.

Record all rent and any rent-related income.

Keep relevant bank statements and credit card records.

Have readily available a copy of the tenant lease and any land tax assessment made on you that year.

All expenses to be claimed as deductions should include the item, the cost, the supplier's name and the date of purchase. 

List all relevant costs of any significant improvements. Your accountant may suggest some are capitalised over a set period instead of claimed in one year. 

The cost of repairs and improvements must be separate from depreciation costs. That will enable you to work out deductions and capital gains or losses correctly more easily.

You must retain proof of the property purchase price and the date you entered into the contract of sale. When the time comes to sell, you'll have to work out any capital gain or loss. The relevant date for this calculation is the contract of sale, not the time of purchase (settlement date).

When selling, you can claim the costs of the marketing campaign, agent commission, legal fees and so on. This will be set against your capital gain or loss. 

All records must be kept for a minimum of five years.

All records should be in English or easily translatable.

For more details or any assistance with your investment property please get in contact with our office, we would be happy to discuss further with you. 

In all circumstances, it's advisable to seek professional financial advice before buying an investment property or expanding your portfolio. This article is for general purposes only and is not professional advice.