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The end of financial year is a great time for property investors to claim back a portion of their investment expenses. How will you fare?

With the new financial year almost here, it’s time for landlords to start thinking about doing their taxes for their investment properties.

However according to the Australian Taxation Office, there are a number of common mistakes property investors make when it comes to claiming tax. "It’s a primary responsibility of all investors to make sure they are doing their taxes correctly," says State Custodians' General Manager, Joanna Pretty. "If you’re not sure how to navigate your investment property tax deductions, then seek out legal and financial advice from qualified professionals, to ensure you only claim what you are entitled to. If you don’t do your property taxes correctly, there can be serious consequences."

Construction costs

  • Mistake: Claim the purchase cost of the land as part of the construction cost for the property

    There are certain types of construction costs that you can claim such as extensions and structural improvements, but the land is not a part of this.

  • Mistake: Claim construction costs as a depreciating asset

    Depreciating assets in a rental property may include curtains, carpets, hot water systems and stoves and deductions can be claimed for these. However, construction costs do not fit into this category.

Interest

  • Mistake: Claim interest on the private portion of a home loan

    If you have multiple portions with your home loan that have both personal and investing purposes (for example, if you take out a home loan to buy an investment property and a car), you are not able to claim interest on the personal portion.

Travel

  • Mistake: Claim travel costs for visiting a property

    Travel expenses relating to a residential investment property are not deductible. You are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property unless you are carrying on a business of property investing or are an excluded entity. As with prior years, the travel expenditure cannot be included in the cost base for calculating your capital gain or capital loss when you sell the property.

Allocation of rental expenses

  • Mistake: Claim expenses for private use of the property

    If you have an investment property but also use it for personal use (e.g. a holiday home or have friends/family living in the property for free), you are not able to claim expenses during that period.

Records

  • Mistake: Not keeping up to date or accurate records

    Whether you prepare your tax return yourself or use a tax agent, you need to keep an accurate record of the following:

    • Rental income and deductible expenses: These need to be kept for five years from 31 October to five years from when the tax return is lodged after 31 October.
    • Documents relating to ownership of the property including all purchasing and selling costs: These documents need to be kept for five years from the date you sell your investment.

     

    By keeping all of these documents handy, it will be a lot easier to make accurate calculations and ensure you remain within the right side of the law and claim the correct investment property tax deductions

The above is general commentary only and is not advice tailored to any individual’s financial situation. It is recommended that you seek professional advice with regards to your financial and taxation affairs.

 
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