Many individuals who own a rental property receive a tax refund because the property is negatively geared. That is, where your interest deduction results in a tax loss from the property.
Accordingly, once 30th June comes around, you expect a fast turnaround in lodging your return and receiving your refund. A bit of pre-planning can make tax time more efficient and produce the best possible result.
Some simple strategies are as follows:
You must have evidence of your income and expense so you can claim everything you are entitled to. It is important that you keep all receipts to substantiate your rental deductions.
MAXIMISING DEPRECIATION AND BUILDING WRITE OFF CLAIMS:
You can claim certain building costs, renovations, alterations, and structural improvements as a capital works deduction. As a rule, you can claim capital works at 2.5% of the cost for 40 years from the date the construction was completed.
From 1 July 2017 you may not be able to claim a deduction for the decline in value of certain second hand assets against your rental property income. Be careful of the rules regarding claims in respect of depreciable assets, which are items of plant that do not form a part of the premises.
The most accurate way of determining your costs, is through a quantity surveyors report. They will calculate the capital works and depreciation deduction available on your rental property.
The cost of preparation of the quantity surveyors report will normally be deductible.
Ensure this is done as soon as possible, ideally before year end.
BRING FORWARD ANY ALLOWABLE DEDUCTIONS:
Repairs and Maintenance
You may be able to claim a deduction for repairing wear and tear or damage that occurred because of renting your property. Conducting repairs and maintenance before the financial year end will bring forward a deduction to the year the repair cost is incurred. Similarly, assets costing $300 or less may be claimed as an immediate deduction. A well, maintained property may achieve higher rent and attract a better-quality tenant.
Prepaid expenses are those that relate to a future year. A deduction is available to an individual for prepaid expenses of less than $1,000 and expenses of $1,000 or more where the service period is 12 months of less. Expenses that are often prepaid include interest, insurance, or service agreements. You need to consider the impact on your cashflow before prepaying any expenses.
Travel and Car Expenses
Traveling expenses relating to a residential rental property owned by an individual are no longer deductible (from 1 July 2017).
Consider whether you should
- obtain alternative quotes for service – e.g., insurance
- refinance your property, to get a better deal
- sell your property – but to defer capital gains tax to a later year, do not sign a contract until after 1 July.
Organisation and planning are the key
Book to see your accountant early.