Be warned that this year the Tax Office has identified that it is on the lookout for inappropriate or excessive claims for rental properties.
The four key problem areas identified are;
- Excessive deductions being claimed for holiday homes. Deductions are only available for the periods the property is rented out or available for rent during a financial year. If rented to family or friends at below market rates then the expenses must limited to income received.
- Husbands and wives inappropriately splitting rental income and deductions for jointly owned properties. When a rental property is owned jointly then income and expenses are to be included in each taxpayers return, including more expenses in the higher income earner’s tax return is not allowable.
- Claims for repairs and maintenance shortly after a property was purchased. If significant repairs and maintenance are carried out shortly after a property is purchased these may be viewed as ‘initial repairs’ and classified as capital expenses.
- Interest deduction being claimed for the private proportion of loans. Interest expenses incurred with respect to a rental property are only deductible to the extent that the property is being used to produce rental income. Any interest expense referrable to any private use of property is non-deductible. Similarly if funds are drawn from the loan for private purposes, ie. buy a car, then the interest on that re-drawn amount is non-deductible.
When compiling your records for tax keep in mind the below allowable deductions;
- Advertising for tenants
- Body corporate fees
- Commission or management fees paid to agent
- Interest on loans
- Land tax
- Lease/letting fees
- Legal costs re tribunal hearings and ejecting on rent default
- Pest control
- Quantity surveyor depreciation report
- Rates (general, garbage and water)
- Rent insurance
- Repairs (but not initial repairs)
- Travel for inspection and maintenance