As we get ready to kick off the 2019 tax return season, now is a good time to look at some of the things we need to prepare your tax return. Here are some things for rental property owners to consider this tax time.
I’ve purchased a property this year, what do I bring?
The following information will help your accountant get the best result, as well as help determine the cost base of your property for Capital Gains Tax purposes.
- Contract for the property purchase
- Settlement statement for the purchase
- Loan statements
- Date when the property was made available for rent
- Records of income received, and expenses paid related to the property up to 30 June (such as an agent’s statement)
Also talk to your accountant about whether a ‘quantity surveyor’s report’ might give you more tax deductions. These reports look at what the building, fixtures, fittings and any renovations cost and whether there are any tax deductions left, even if you weren’t the person who built or renovated the property.
All of my loan interest is deductible, right?
It is best to provide your accountant with all the loan statements relating to your rental property for the financial year. Providing just the interest amount might mean the wrong deduction is claimed in your return.
If you have drawn on the property’s loan during the year make sure to provide details of what the drawdowns were for. If they were for expenses relating to the property, or for improvements, generally the interest will be tax deductible.
If money has been drawn out for personal use such as buying a car, renovating a personal home or for a holiday the tax deductibility of the loan might be affected.
Is it a Repair or Renovation?
If work has been done on your property have a chat to your accountant whether the expenses are repairs or renovations, as these are treated differently for tax purposes.
Repairs and maintenance are basically restoring the property to the condition it was in when acquired, or work to prevent deterioration. Repairs and maintenance are deductible when paid for.
On the other hand, work is capital in nature when it improves the condition or value of an item beyond its condition or value when the item was acquired. This type of expenditure cannot be claimed upfront but is generally claimed over a few years.
I’ve sold my property, what now?
Selling a rental property will generally result in a Capital Gain or a Capital Loss. This is worked out using the information in the following:
- Contract for property sale
- Settlement statement for property sale
- Contract for property purchase
- Settlement statement for property purchase
- Initial loan statement (this often shows stamp duty paid)
If you have ever lived in the rental property it is important to tell us as that period may not be subject to Capital Gains Tax, reducing the amount of tax that might be payable.
Capital Gains are taxed at your ‘marginal tax rate’ which means the gain is added to your other income and the tax is worked out using the tax rate for your income. There are no special tax rates for Capital Gains.
If you make a Capital Loss because the cost is more than what the property was sold for, the loss must be held until a Capital Gain is made in the future, it cannot be offset against income such as wages, investment income or business income.
Changes to deductions applying from 1 July 2017
There were a couple pretty big changes made to what rental property owners could claim from 1 July 2017 including to travel and depreciation. Here is a quick refresher on the changes that came in almost two years ago.
- Residential rental property owners cannot claim expenses for travelling to inspect or maintain properties, or to collect rent. This includes motor vehicle expenses, accommodation and meals.
Please note this does not apply to commercial rental properties.
- Second-hand or previously used depreciating assets acquired from 1 July 2017 cannot be claimed as a deduction.
This covers things like purchasing and installing second hand appliances such as an oven, as well as deductions for depreciating assets from quantity surveyors reports for properties acquired after 1 July 2017 not being available.
For more tips to help manage your rental property this tax time, visit the Australian Tax Office ‘Top 10 tips to help rental property owners avoid common tax mistakes’ or talk to your accountant at Green Taylor Partners.