Claiming tax deductions for a property investment should be straightforward. Theoretically, you should be able to claim against any expenses you made in maintaining the property.
Unfortunately, it’s not that easy. This year the Australian Tax Office (ATO) released a guide on the common mistakes that first-time property investors make when they are fixing their books. This included:
• incorrectly claiming deductions for properties only available for rent part of the year.
For example, if you are staying in for part of the year or using the property as a holiday home.
• incorrectly claiming the cost of structural improvements as repairs when they are capital works deductions.
For example, you can’t claim against remodelling a bathroom or building a pergola because under tax rules, these don’t fall in the definition of repairs.
• overstating deduction claims for the interest on loans taken out to purchase, renovate or maintain a rental property. Make sure that you’re not claiming interest against the private portion of your loan.
According to the Australian Tax Office, there are two types of expenses you can make a claim on:
First, you can claim the expenses for the year you paid on:
1. council rates
4. loan interest
Secondly, expenses that are deductible over a number of years such as:
1. Borrowing costs
2. Creating structural improvements and
3. Costs of depreciating assets
This last three can be quite complicated so just ask your accountant about how to calculate them.
If you need more information, call 1300 720 092 and ask for a booklet called Rental properties 2007 or download it on www.ato.gov.au.
If all else fails and you want to talk to someone, call the Tax Office about deductions for rental properties on 13 28 61.
Trivia: In 2006, over 1.5 million people claimed more than $24 billion in rental deductions in their tax returns. Some 170,000 individuals claimed deductions for the first time.