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Ensure you enjoy many happy returns as a landlord this tax time

June 6, 2024

Some events only happen once a year: Christmas, Easter, grand finals, and, of course, the accountant’s Yuletide—the End of the Financial Year (EOFY) on 30 June. But just like last-minute gift shopping, it’s never too late to maximise the tax benefits of owning an investment property before the clock strikes midnight on 1 July 2024.

To prepare for tax time, landlords can take the following steps:

1. Understand tax deductions: To maximise your tax return, ensure you claim common expenses such as property management fees, advertising fees, renters’ insurance, council and water rates, bookkeeping fees, cleaning costs at the end of a tenancy, gardening and maintenance fees. To accelerate these claims, ensure all your receipts and bank statements are well-organised.

2. Enlist professional help: Consider hiring a tax professional or accountant to assist with tax preparation and ensure you claim all applicable deductions. These accounting services are also tax-deductible in the same year you pay for them.

3. Claiming interest on your loan: One of the significant perks of property investment is the ability to claim the interest charged on your home loan—or a portion of it—as a deduction. To streamline tax time, ensure you file all loan statements, as they clearly show the accrued interest. Remember, you can only claim interest when the property was leased and generated a rental income.

4. Get a depreciation schedule: A depreciation schedule is a detailed report that allows you to claim deductions for the natural wear and tear on an investment property, including all fixtures, fittings, and the building structure itself. Having a depreciation schedule is crucial for maximising your return on investment. On average, clients of depreciation specialist BMT find nearly $9,000 in deductions in the first full financial year after obtaining a schedule. While a depreciation schedule can cost around $700, it is fully tax-deductible. So, ordering and paying for a depreciation schedule before 30 June allows investors to claim the fee back in the current financial year.

However, making tax time claims is not all rivers of gold, and landlords must exercise caution. The accounting body CPA[i] has issued a warning, noting that with millions of returns and tens of billions of dollars at stake, the Australian Taxation Office (ATO) will closely scrutinise tax returns. 

The ATO employs data-driven profiles based on factors such as employment type and financial investments to identify potential discrepancies. If your claims appear disproportionate compared to typical property investments like yours, you might be required to provide additional evidence to support them. Therefore, CPA Australia advises Australians to be meticulous with their tax returns, ensuring all earnings are declared and deductions are well-documented. Anything unusual may draw the ATO’s scrutiny. 

When it comes to rental property claims, the ATO focuses on owners who make claims for renovations as repairs. Repairs to the property due to tenant wear and tear or damage are tax deductible. However, if the work results in an improvement rather than just repairing damage or results in the replacement of an asset, the expenses will be capital in nature, and you can only claim a depreciation expense, not for the entire cost in the year it was spent. 

Finally, don’t let the ATO’s spotlight dim your EOFY spirits. By knowing your obligations and filing all related loan statements and expenses with help from your accountant, you can maximise the tax benefits of owning a quality, well-located investment property.

[i] https://www.cpaaustralia.com.au/about-cpa-australia/media/media-releases/is-your-number-up-this-tax-time