Avoid Common Tax Return Mistakes for Rental Properties

End of Financial Year Special Edition #1

As the end of the financial year approaches, the ATO has issued crucial advice for rental property owners to help them avoid common tax return mistakes and ensure accurate claims. Many rental property owners make errors, even with 86% using registered tax agents.

1. Expense Claims: Ensure comprehensive records of expenses are provided to tax agents.

Example: John, a rental property owner, keeps receipts for repairs, electricity/gas bills, and property management fees. He provides these records to his tax agent to ensure all expenses are accurately claimed and keeps prior years receipts for at least 5 years. If you’re unsure what you can or can’t claim, overshare and let the Tax Agent decide.

2. Repair vs. Capital Items: Repairs can be claimed immediately, but capital items over $300 must be claimed over time via Depreciation.

Example: Sarah replaced a broken window in her rental property and claimed the expense immediately. However, when she installed a new $2,000 air conditioning unit, she spread the claim over several years as it was a capital item.

3. Double Dipping: Avoid claiming expenses twice; only claim amounts personally incurred.

Example: Mark paid for property insurance and later reimbursed himself from the rental income account. He only claims the expense once, ensuring he doesn’t “double dip” by claiming it both as a personal and business expense.

4. Interest Deductions: Only claim interest on the loan amount used for the rental property, not for private expenses.

Example: Emma refinanced her home and used $50,000 of the loan for personal renovations. She only claims interest on the portion of the loan used for her rental property, not the amount used for personal expenses.

5. Body Corporate/Strata Deductions: Levy payments for routine maintenance are deductible; capital expenditures are deductible after completion.

Example: Tom pays quarterly levies to his body corporate for gardening and common area cleaning, which he claims immediately. However, when the building undergoes a major roof replacement, he claims the capital expense over several years as Depreciation Claims or Capital Works Claims.

6. Borrowing Costs: Claim these over the life of the loan or five years, whichever is shorter.

Example: Lisa took out a loan for her rental property and paid $1,500 in borrowing costs. Since her loan term is 20 years, she spreads the borrowing cost deduction equally over five years.

7. Record Keeping: Maintain detailed records of all expenses, including receipts, invoices, and bank statements.

Example: David maintains a digital folder where he scans and saves all receipts, invoices, and bank statements related to his rental property. This meticulous record-keeping ensures he has all the documentation needed for accurate tax claims.

At the end of every financial year, your Managing Agent wil send you the Annual Rental Summary for all of the investment properties you own. Forward this to your accountant as soon as you receive it and they’ll save it on file. This will give you a head start come tax time as it covers the Annual Income and many of the major expenses related to the property incurred throughout the year.

If you’re unsure or want clarification on any of the above , please contact us!

Check out the full article:

ATO warns landlords against common tax return mistakes – Smart Property Investment, June 13, 2024.

Alexander Laureti is the Principal and Managing Director of LMS Advisory. He holds a Bachelor’s degree in Accounting and Law, and he is a Fellow of the CPA (Certified Practising Accountants) and a Chartered Tax Advisor. Alexander has over 17 years of experience as an accountant in Public Practice.
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