REAL estate investors are rubbing their hands together in anticipation. Their favourite month of the year is almost here.
That’s right, folks — July. Tax time, to be precise. While most people shudder at completing a tax return, property investors see it as a chance to snag a handy cash windfall.
A year of interest payments, council rates, insurance and maintenance costs can finally be claimed back through tax deductions.
Latest figures from the Australian Taxation Office show about $8 billion of rental property deductions are claimed each year, so it’s a big pot of money to share.
However, greed is not good in this instance. And it could be dangerous to your wealth.
The ATO says it is increasing its focus on rental property deductions this year, and it has warned that its advances in technology enable it to now check every Aussie’s tax return for unusual claims.
Mistakes, whether innocent or deliberate, can lead to unpleasant penalties.
The ATO says common errors made by rental property owners include:
Claiming rental deductions for properties not genuinely available for rent;
Overstating interest deductions for loans taken out for rental properties;
Incorrectly claiming deductions for holiday homes, that are only available to rent for part of the year.
Wrongly claiming deductions for repairs and maintenance on spending on improvements such as pergolas and bathrooms. These are capital improvements and should be written off over several years.
While some investors may be tempted to claim too much, many others fail to claim what they are legally entitled to.
Depreciation is the best deduction for property investors, because writing down the value of curtains, carpets and building costs sucks no money from your pocket but still potentially pays thousands of dollars. However, many people don’t depreciate properly, or at all. Get a depreciation report on your property from a quantity surveyor. These cost about $600 and are tax deductible.
Also read the rental properties guide at ato.gov.au.
ATO technology improvements have made it foolish to try to cheat the tax man. But don’t cheat yourself by being forgetful or ignorant.