Are you tax compliant as a property investor?

With tax time fast approaching, it’s essential to know what investment property expenses and income you will need to declare on your tax return in relation to your investment property.

Investment property tax can work in your favour to reduce your overall tax bill and offset the cost of owning an investment property, but there are potential pitfalls to avoid.

Take a look at what you can claim and why you need to be careful before you submit investment property expenses in your tax return this year. 

Investment property tax benefits

There are plenty of costs your investment property allows you to deduct at tax time.

Here are a few of them, according to the ATO website:

• advertising for tenants
• body corporate fees and charges
• council rates
• water charges
• land tax
• cleaning
• gardening and lawn mowing
• pest control
• insurance (building, contents, public liability, loss of rent)
• interest expenses
• prepaid expenses
• property manager fees and commission
• repairs and maintenance
• legal expenses
• depreciation on goods at the property

Being able to claim these expenses on tax will reduce your overall holding costs and can push you further towards being cash flow positive. A reliable property manager will help you keep a record of each expense, and a good tax accountant will help ensure they are included in your tax return.

Take note: your Perth property must be tenanted or at least actively available for rent if you wish to claim any deductions when you process your tax return. You also can only claim rebates for expenses that relate to the income production of the property and not to your personal use. See the ATO website for more information.

You also need to declare the income you earn from your investment property. This includes rent paid to you as well as AirBnb fees, money earned from leasing a room, or leasing your place to family and friends at less than commercial rates. It also includes income relating to capital gains. Again, you’ll find information on the ATO website. 

2023 ATO landlord crackdown

This year, the Australian Taxation Office (ATO) is set to take a close look at investment property expense claims and income declarations.

Reports say the ATO is expected to scrutinise 1.7 million Australian property investors, including those in Perth, using a new data-matching program. 

Agents from the ATO will be able to access account information from seven of the major banks, including ANZ, NAB, Westpac and St George, to confirm investors’ income and expense claims. 

This has come about after estimates showed there was a net tax gap of $9 billion in the 2019-2020 financial year, of which up to $1.3 billion may be related to landlord expense claims and failure to declare income. 

The data matching program will be able to collect personal information including loan account and transaction details. Having access to this information will allow the ATO to independently cross-check people’s claims and find out if investors are leasing properties without declaring their earnings. 

It is also possible that the ATO will be retroactively assessing 2021/2022 tax returns, so now is the time to contact your accountant and property manager to make sure your return correctly reflects your income and expenses.

How to stay compliant

The last thing you want as a property investor is to be investigated by the ATO because your tax return claims don’t match the transactions in your bank account. 

As mentioned, you need to work with an experienced property manager who will help you track and record expenses. If you incur expenses without looping in your property manager, keep them on file to share with your accountant.

Be honest and upfront with your tax accountant. There are so many things you can claim and this should help you to offset the income you generate from your investment property. If you’re concerned that your tax return may not have been correct in previous years, you can always talk to your accountant about updating it. 

Do you need help to understand or report your investment property income and deductions?  Get in touch today.