Why landlords need to prepare for tax time
Tax time is looming but many Australian property investors are unprepared.
"Landlords often come under scrutiny from the ATO when lodging tax returns, so it is important they complete their claims accurately," says Carolyn Parrella, executive manager of landlord insurance specialist Terri Scheer Insurance.
"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.
"Seeking advice from a tax specialist can help make this time of the year much easier for landlords."
The net loss generated by negative gearing can be offset against other income to reduce the tax payable, says Parrella, herself a property investor.
"Landlords may be unaware that interest can only be claimed when the 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 month," she explains.
It's often overlooked but property investors can usually claim their landlord insurance premium as a tax deduction.
"Ahead of tax time, it's also worthwhile checking your insurance policy to ensure you have the appropriate coverage," Parrella says.
"Some landlord insurance policies provide cover for professional fees incurred as a result of an ATO tax audit relating to investment properties."
A standard home and contents insurance policy won't cover landlords for the specific risks associated with property investing.
Landlords can potentially miss out on thousands of dollars of tax benefits by under claiming, Parrella says.
"Apartment or unit owners may be able to claim body corporate fees on strata or community title properties. Landlords who rent a fully-furnished property, such as a holiday home, may be eligible to claim some of their rental income as a tax deduction."
Maintenance costs, such as changing light globes or fixing a hot water service if it breaks, may also be tax deductible.
"Running costs such as council rates, land taxes, water and sewerage charges might also be legitimate and claimable expenses," she says.
"Landlords should check with their accountant to determine what they can and cannot claim."
"If you're a self-managed landlord, you may be able to claim some of the costs of your home office. You won't be able to claim all the costs, such as purchasing the computer and the monthly internet bills, however a fair and reasonable part of this may be deductible," says Parrella.
She recommends seeking advice from a qualified accountant.
Not only are property managers an invaluable asset to landlords, their cost can be a deductible expense for landlords.
"Appointing a property manager might create a potential tax benefit while assisting with organisation and saving time for landlords," Parrella says.
"A good property manager will take care of the administrative responsibilities involved in an investment property.
"They should also be able to help reduce the burden at tax time by compiling and completing the relevant paperwork for ATO reporting."