Tax time tips for landlords

Posted By Nikki Montaser

How quickly does a year pass? It’s tax time again; for many property investors, some of the costs of owning a rental can be claimed as a tax deduction.

In the lead-up to the end of the financial year, the ATO lets taxpayers know their key priorities when assessing returns. This year, the ATO is looking at rental property income and deductions.

While many property investors will use a tax accountant who can discuss the nitty-gritty as it applies to your specific circumstances, it’s a good idea to be aware of what expenses you can legitimately claim as a deduction and what income you must declare. You will need evidence to support your claims, so ensure your paperwork is organised and ready.

Expenses

Your accountant and the ATO offer detailed guidance, but, in general, the costs landlords may be able to claim include expenses such as:

advertising for tenants
body corporate fees
council rates
water charges
land tax
cleaning
gardening and lawn mowing
pest control
interest expenses
property agent's fees and commission
repairs and maintenance
some legal expenses
borrowing expenses
depreciation
capital works expenditure.
landlord insurance premiums

Let’s talk about ‘double-dipping'

Double dipping is never a good idea – not at a party, nor when it comes to tax time or insurance.

For example, landlords can’t look to make a ‘profit’ from an insurance claim. This means they can’t make a claim with their insurer and also claim the expense (loss) as a property-related tax deduction. The ATO considers this one of the three golden rules: “you must have spent the money yourself and weren’t reimbursed”. In insurance circles, it’s known as the ‘f-word’ – fraud. It’s a sure-fire way to incur the wrath of both the insurer and the tax office.

Income

On the flip side, landlords must be sure to provide the ATO with the details of all income they derive from the rental.

This income isn’t just the rent received. It may also include:

payments received in the form of goods and services
rental income from property owned overseas
bond money you retain in place of rent or keep because of damage to the property
letting and booking fees you retain when renters or holiday makers cancel a booking
payments for deductible expenses, such as
- payments from a tenant to cover the cost of repairing property damage
- government rebates for buying a depreciating asset (e.g. a solar hot water system)
the money you receive from a relief fund in a disaster
any insurance payout you have received. For example, if you made a claim for damage sustained from a natural disaster (e.g. bushfire, flood, or cyclone) or if you received reimbursement for the loss of rent. This income must be declared, or you could wind up in hot water with the tax office.

A word about short-term rentals

The ATO requires taxpayers to declare all income they receive. This includes income from offering a property on a short-term basis, such as Airbnb. So even if the owner isn’t a ‘landlord’ in the traditional sense, they need to declare income from such arrangements.

Record-keeping

Meticulous record-keeping is a must. The ATO can ask for supporting documentation relating to any expense you claim and can verify income from all sources, including your insurer.

This article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.