When lodging your tax return, there are a number of common mistakes that property investors make. So, to avoid falling foul of the taxman, here is out guide to avoiding those pitfalls.

Keep records

The key tip is to ensure that property owners keep good records. The golden rule is; if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings. Also, be aware that both your income and expenses may look very different to normal because of the impact of COVID-19.

Common mistakes with your tax return

Amongst the key “don’ts” are the following:

• Claiming excessive interest expenses, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property.
• Incorrectly apportioning rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than jointly.
• Claiming deductions for investment properties that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed. This is particularly important for holiday homes, where the ATO regularly finds evidence of home-owners claiming deductions for their holiday pad on the grounds that it is being rented out, when in reality the only people using it are the owners, their family and friends, often rent-free. Recently the ATO issued a list of four questions holiday home owners should be asking themselves; consider your answers to these to determine if you have anything to be concerned about: 
  
  • How do you advertise your rental property?
  • What location and condition is your rental property in?
  • Do you have reasonable conditions for renting the property and charge market rate?
  • Do you accept interested tenants, unless you have a good reason not to?
• Claiming repairs for newly purchased rental properties. The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years or are added to the cost base of the property for CGT purposes. Expect to see the ATO checking such claims and pushing back against claims which don’t stack up.
• Incorrectly treating properties that are rented out to friends or family at a discounted rate. This will be regarded as a non-commercial rental. The income will still be taxable but you’ll only be able to claim deductions up to the amount of rent you’ve received. You won’t be able to make a loss; if you were relying on negative gearing, that isn’t a desirable outcome!

Get a tax agent!

A tax agent, such as H&R Block (Tax Return & Tax Accountants in Australia | H&R Block Australia (hrblock.com.au)), is a “must have” for property investors – they can point you towards those deductions you didn’t know you could claim, can accurately work out what’s deductible and what’s not, and their fee is tax deductible.

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.