With tax time fast approaching, property investors may not be prepared. One landlord insurance specialist gives some tips on how to play nice with the tax man.

Carolyn Parrella, executive manager of Terri Scheer Insurance and a property investor, says landlords often come under scrutiny from the ATO when lodging tax returns and it is vital they complete returns accurately.

Landlords should consult their accountants to confirm what can and cannot be claimed as a tax-deductible expense.

This ensures all claims are legitimate and the tax return amount is maximised,Ms Parrella said.

Negative gearing

If a property generates a loss (ie revenue is less than expenses) then the difference is used to offset income from other sources when calculating your taxable income. Investors must ensure that capital purchases are depreciated and not treated as an annual expense.

Capital purchases will include renovations, new/replacement equipment such as air conditioners and replacement carpets.

Ms Parrella added that landlords may be unaware interest can be claimed only when a property is available for rent.

For example, if a property is lived in for half a year and leased as a holiday rental for the other half, you cannot claim the interest for the full 12 months.

Insurance

Landlord insurance premiums can usually be claimed as a tax deduction, but Ms Parrella said this is typically overlooked.

She urged landlords to check their insurance policy to ensure they have the appropriate coverage.  A standard home and contents insurance policy won’t cover landlords for the specific risks associated with property investing,Ms Parrella said.

Expenses

Landlords may also forget to claim costs they are rightfully entitled to. For example

  • apartment owners can claim body corporate fees on strata or community title properties;
  • Property management fees
  • maintenance costs
  • Council rates, land taxes, and water and sewerage charges .
  • Landlord protection and some building insurance (Home & Contents for the property)
  • Court costs to take errant tenants to court
  • Home office cost (need to take care on this as when you claim this expense there might be implications affecting your capital tax on the sale of your home)
  • Reasonable travel Expenses to inspect your rental property (2 per annum)

You should ensure your accountant or financial adviser gives advice where required

Income

Income includes:

  • Rental income
  • Interest earned
  • Insurance payouts on the property
  • e. lost rent  under your landlord protection policy
  • Replacement damaged carpet (this is in turn offset as an expense when the tax return is done)

Property manager

Property managers can be useful for landlords and their cost can be a deductible expense, according to Ms Parrella.

Appointing a property manager might create a potential tax benefit while assisting with organisation and saving time for landlords, she said.

Gow Property provides a detailed financial statement if requested to their property owners detailing the expenses (ones that go through our trust account) and rental income in a format suitable for your accountant.

You should be aware of any other costs that you have incurred that will not be on the statement but can be treated as a taxable deduction.

 

Based on and article by Terrie Scheer and Smart Property Investment