The COVID pandemic sent rental prices soaring and disrupted the property investment market in a way that was never seen before.
It also, in a very unforeseen way, encouraged the migration of many families from the southern cities (Sydney, Melbourne) to sunny Queensland.
This caused a very competitive market for renters who were willing to pay higher prices…
But in a much more foreseeable event, this surge in rental popularity caused a reaction from the ATO: namely, to enforce a tax crackdown on the rental property owners themselves. Read on to see if this affects you.
The Top 3 Most Common Mistakes Rental Property Owners Make
Firstly, rental property owners are under significantly more scrutiny from the ATO this tax year and next.
Meaning even minor errors may attract the attention of the ATO. Unfortunately, the ATO estimates that nine out of ten tax returns that included rental income were reported to have at least one mistake.
Luckily, our expert team have decades of experience in navigating these exact errors. For your benefit, we’ve listed the top 10 below:
- You can’t claim deductions for purchase costs of your property during the buying stage, such as stamp duty, paying specialists such as mortgage brokers or conveyancers.
- Initial repairs are not the same as capital improvements: repairing wear & tear while renting out the property may be tax deductible. But repairs made immediately after purchase, before renting, can only be claimed over several years
- Tax deductions for co-owned properties must be declared separately, as you are only entitled to claim deductions referring to your share of legal ownership of the property.
It’s not all bad news, though. The ATO is still offering payment plans to assist rental property owners.
Wondering what a payment plan is?
A payment plan is an agreement between a rental property owner and the ATO to pay the property owner’s tax liability in installments over a number of years.
This option is ideal for rental property owners who may have been hit particularly hard by the COVID restrictions & pandemic.
It also lends flexibility to more risk-comfortable investors who are looking to invest in multiple properties as once, without tying up all of their capital.
Always Keep The ATO In The Loop On Property Sales
Selling a rental property is where many property owners unfortunately get tied up in a flood of paperwork, and genuine mistakes can happen.
Capital gains tax is the most important factor to consider in this situation. Sellers must be aware of any capital gains or capital losses made during the sale, and report these accurately to the ATO (or have your accountant do it for you.)
Where mistakes tend to happen is when calculating the base cost of the property being sold or purchased. These include all costs and fees associated with buying or selling the property, such as:
- Stamp duty
- Conveyancer fees
- Mortgage brokers
- Building and pest inspection
- Valuations
- Paying your real estate agent and/or real estate buyer
The Best Defense Is A Good…Receipt?
By the far the second-best practice you can uphold is to keep records of all rental income and expenses. Not only will this make things easier and faster come tax time, but it will ensure you have everything prepared in case the ATO comes knocking.
The ATO, after all, can ask you for proof of each claim you make.
All records should state the following for crystal-clear clarity:
- Total amount of the expense you’re claiming
- The nature of goods and/or services you are claiming as deductible
- Date o the expense
- Name of the supplier (E.G. the company you used for repairs)
But by far the best practice you can keep in order to avoid a tax crackdown on your rental income is to hire an accountant and/or bookkeeper!
As tax professionals, our reliable team have submitted thousands of rental income tax deductions to save our clients time, hassle and money. Book your free meet and greet with our director today!