The end of the fiscal year (EOFY) is fast approaching and property investors need to develop the knowledge to help them file their returns properly and claim refunds and deductions.
Recent events, including the COVID-19 epidemic, have had a substantial impact on the housing market, particularly on investors. How will these events change the way Australian investors prepare for their tax returns?
Your investment property has contacted Mark Chapman, director of tax communications at H&R BLOCK, to find out how current issues could affect tax filing this year and how property investors can better navigate the changing environment.
How will the coronavirus epidemic affect your tax returns and tax returns?
The COVID-19 epidemic had a significant impact on the finances of many Australians, including real estate investors. While state governments have imposed a moratorium on evictions, most landlords and tenants have been encouraged to make their own arrangements for rent reimbursement.
Chapman said that you can still claim the expenses you incur on your property even if you have arrangements with your tenants to defer or reduce the rent.
"If you later receive rent arrears after the crisis ends, these amounts will be taxable when they are received," he said. "If your bank defers loan payments due to COVID-19, the expenses are still considered to be incurred by the owner and, therefore, a deduction may still be claimed for the item of interest."
What is the most important thing you need to know about your taxes?
The organization is crucial for real estate investors when filing their claims and tax returns.
"The golden rule is: if you can't prove it, you can't claim it, so it's essential to keep invoices, receipts and bank statements for all property expenses, as well that proof that your property was available for rent, like rental ads, "said Chapman.
Real estate investors must make an effort to ensure that all documents are available and in good condition. They should also find copies of missing invoices to maximize the refunds they can get.
"Also be aware that your income and expenses may seem very different from normal due to the impact of COVID-19," said Chapman.
What are the things that real estate investors can claim during tax season?
For Chapman, the most important expense you can claim when you file your taxes is the amount you pay on your mortgage. Note, however, that only interest is deductible.
"In addition to interest related to the acquisition of the property, you can also claim a deduction of interest on loans taken out for: carrying out renovations; buying depreciable assets – for example, furniture; repairs or carry out maintenance work or buy land on which a property is to be built, "he said.
Here is an exhaustive list of the costs that you can claim:
Advertising for tenants, including fees charged by rental agents
Cleaning at end of rental (including garbage removal)
Real estate and rental agents (including management fees)
Gardening and lawn mowing (including felling or pruning of trees)
Secretarial and bookkeeping costs associated with rent collection and payment of property expenses
Bank charges on the account used to receive rent and pay expenses
Local rates and property tax
Insurance (building, content or civil liability)
Credit Checks
Pest control
Bank or attorney fees for security of title documents
Tax advice relating to the property
Legal fees to evict a tenant for non-payment of rent
Hire a collection agent to collect rent arrears
Cut new keys
Maintenance of items such as water heaters, smoke detectors, air conditioning systems and garage door mechanisms
Water supply costs (insofar as they are not paid by the tenant).
Quantity controller
Security patrols
Security system monitoring and maintenance
What are some things investors may not know when they file applications?
Chapman said that a tax agent can help you determine everything you are entitled to claim on your tax return. However, some investors may not know that they can claim prepaid expenses.
"If you pay an expense this year that relates in whole or in part to next year, you can claim a deduction for the total amount this year. This is particularly useful with expenses that overlap the Tax year, like insurance policies or subscriptions, "he said.
You can also request reimbursement of your expenses for your personal telephone, your computer, your Internet services and your mobile telephone if you have used them within the framework of the management of your property.
Real estate investors can also consult a quantity surveyor to help you with your depreciation requests.
"Depreciation is usually one of the most important deductions, difficult to calculate correctly, and many owners miss potential deductions by claiming wrongly," said Chapman.
What mistakes should investors avoid when asking for tax deductions?
Real estate investors are prone to make mistakes when they file their tax returns and claim deductions. If you don't want to trigger an audit of the tax office, Chapman said you should avoid making these mistakes:
Claim excessive interest charges, for example when landlords have attempted to claim loan charges on the family home as well as their rental property.
Incorrect allocation of rental income and rental expenses among owners, for example when deductions on a condominium property are claimed by the owner with the highest taxable income, rather than jointly.
Request deductions for investment properties that are not really available for rental. Rental property owners should only claim for periods during which the property is rented or is actually available for rental. Periods of personal use cannot be claimed. This is particularly important for holiday homes, where the ATO regularly finds evidence of owners claiming deductions for their holiday block on the grounds that it is rented, when in reality the only people who use it are the owners, their family and friends. , often without rent.
Claim for repairs to newly purchased rental properties. Repair costs for damage and defects existing at the time of purchase or renovation costs cannot be claimed immediately. These costs are rather deductible over a number of years or are added to the basic price of the property for CGT purposes. Expect to see ATO verify these claims and reject non-cumulative claims.
Treat properties rented from friends or family incorrectly at a reduced rate. This will be considered a non-commercial rental. Income will still be taxable, but you can only claim deductions up to the amount of rent you have received. You cannot make a loss; if you were counting on a negative gear, this is not a desirable outcome.
