Getting the Most out of your Property Tax Return

Your rental property offers a range of benefits beyond just making your portfolio look good. If you own a rental property, then you probably look forward to the benefits you can claim at tax time such as rental depreciation.

Getting a generous return is a definite advantage if you are a savvy tax payer, but with tougher regulations being implemented by the ATO, you need to be even smarter with your returns.

To avoid the common pitfalls of the rental property tax system, make sure you know how to apply the rules inside and out. Let’s take a look.

Know the difference between repairs and renovations

A common mistake for a lot of rental property owners is blurring the line between repairs and renovations. Where does one start, the other end?

The ATO has a clear line in the sand to help guide your tax return, but often it can be enticing to try and talk your way around it.

If you have recently completed renovations to your property like installing a new kitchen, this isn’t a repair. A repair is the restoration or remedy of an issue at your rental property that is a result of damage or deterioration. Have we lost you?

For example, if you have to replace the staircase because of wood rot, then you can claim this as a deduction on your return. It can be tempting to make a few sneaky claims for the capital expenditure relating to renovations, but buyer beware.. the ATO is focusing on this exact claim so don’t risk becoming a cautionary tale.

Know the difference between repairs and renovations.

Private or rental purposes

A great way to boost your return on your rental property is by claiming the interest on the loan required to purchase the property. By claiming the loan interest you can add a sizeable deduction on your tax return. Although take your time with this process, as there is a right way of doing it and a wrong way of doing it. Be careful to not claim the loan interest for the entire period if you actually used your rental property for private purposes.

If you lived in your rental property for any period of the financial year, then you cannot claim the interest on the loan for that period. It can be difficult to ascertain the actual amount of interest if you have to split it into deductible and non-deductible, but it is worth it to avoid the headache of the ATO auditing your return. The easiest way to achieve this is to speak with one of our qualified taxation accountants who can easily help you determine your deductible amount.

Document everything

If you had a dollar for every time a tax agent told you this, you would have two rental tax returns to complete. The easiest way to ensure a smooth and personally rewarding tax return on your rental property is to maintain and keep impeccable documentation records. This is even more important when it comes to repairs and other expenses associated with your rental property. Also, be aware you are NO-LONGER allowed to claim travel to your rental property.

The ATO is auditing more and more rental property claims, with one of the biggest issues being a lack of documentation. The old saying holds true, the right amount of documentation for your tax return, is too much. Safeguard yourself by keeping detailed records and documentation of all expenses incurred. When you visit your tax agent, they will help you discern what is necessary to help support your return.

Impeccable records are the key to staying compliant with the ATO

New and existing rental depreciation rules along with claim regulations and laws are making it harder than ever to get your tax return right. Claiming deductions that blur the lines of these regulations is under more of a microscope than ever. Instead of faltering and facing a potential audit, contact the dedicated team at Catalyst to help guide you through the rental property taxation process.

If you would like to discuss your rental property tax options, we have a team of property tax specialists ready to provide direction. Book an appointment with our Catalyst team, and find out what you should be seeing on your rental property tax return.

Or simply call us on 02 6977 4333.