What can landlords claim on tax?

What can landlords claim on tax?
What can landlords claim on tax?

Dear Ken, 
I've leveraged a purchase in a NSW Investment Property, do you have any tips for me at tax time?

Hello there, and well done on your property investment. As well as a good long-term future investment, there are many ways of generating benefits now, and tax time as you indicate is an excellent opportunity to legitimately realise this. Here are some suggestions I hope you find both practical and perhaps enlightening.

  • From the outset you should be able to get an accurate depreciation schedule from quantity surveyor.
  • If you are contemplating a renovation then you should get a “scrapping schedule”, which both identifies and puts a value on what you throw away. This is then written off in the year of the renovation, plus you can also depreciate the new work thereafter.
  • Remember to add up all borrowing costs such as bank fees, valuation, stamp duty and so on, as you can write this off over five years.
  • To minimise your accounting fees get your real-estate agent to pay for everything other than interest, as he or she will give you a monthly and annual statement. You then only need keep bank statements.
  • Land tax is a fairly muddy area. If you bought your Investment Property through a special trust then there is no threshold. If, however, you bought it through a company or your name, then $387,000 is the official threshold before land tax is due. Land tax is applied at 1.6% on the land value (not property value) above your applicable threshold and then 2% if land is valued at above $2.366 million. You will receive a bill in around February for the year before and will need to pay for that year in full.
  • Try and save yourself time and stress by having all relevant documents ready for your accountant at tax time, including a copy of your contract of sale, loan documents, settlement sheet and all documents showing interest and other costs paid. If you are really organised then you could try and put this into a spreadsheet for your accountant, which is why using an agent to pay for everything other than interest helps.
  • If you did repairs immediately or shortly after the purchase then you many need to discuss this with your accountant as these may legally need to be capitalised (i.e. added to cost of the property) and not expensed.
  • Remember that you can only claim expenses including interest if the property was available for rent. A property that is not occupied by tenants for any period could be problematic, once more your accountant or a quantity surveyor should be able to help.
  • If the property loan is in a different name than yours on the contract of sale then you will need to fix this for tax purposes to ensure interest deductions are applicable. This can be compounded if funds from equity in another property is used. All of this can be fixed via a loan agreement, but you need to discuss this with your accountant to get it right.
  • Finally, if a trust was used to buy the property make sure all documentation is correctly drawn up to conform with ATO rules and requirements to allow you to claim interest deductions. Not all trusts are the same and not all allow tax deductions on expenses including interest expenses.

There is a lot to take in here, which is why some people make property investment a very successful career. My number-one recommendation is if there is any question of doubt in your mind, then you should seek professional advice.

I wish you luck.

Ken

Ken Raiss is a certified accountant and director of Chan & Naylor national accounting firm. Ken’s experience lies in working with large publically listed multi-national companies, which gives Ken excellent insight into international market trends. Ken specialises in educating “mum and dad” property investors and small business owners with advice on wealth creation, asset protection, taxation, superannuation and compliance.

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