Preparing for tax time as a property investor
If you prepaid a rental property expense, such as insurance or interest on money borrowed, that covers a period of twelve months or less and the period ends on or before 30 June of the relevant year, you can claim an immediate deduction. Otherwise, your deduction may have to be spread over two or more years under the prepayment rules if the expense is $1,000 or more.
Claiming interest expenses
You can claim the interest charges on the loan you used to: purchase a rental property, purchase a depreciating asset for the rental property (for example, to purchase an air conditioner for the rental property), make repairs to the rental property (for example, roof repairs due to storm damage), finance renovations on the rental property, which is currently rented out, or which you intend to rent out (for example, to add a deck to the rear of the rental property), purchase land on which to build a rental property and interest you have pre-paid up to twelve months in advance. You cannot claim interest: you incur after you start using the rental property for private purposes, on the portion of the loan you use for private purposes (for example, money you use to purchase a new car or invest in a super fund), or on a loan you used to buy a new home if you do not use the new home to produce income.
Record keeping requirements
You need to keep proper records in order to make a claim, regardless of whether you use a tax agent to prepare your tax return or you do it yourself. You must keep records of: the rental income you receive and the deductible expenses you pay – keep these records for five years from 31 October or, if you lodge later, for five years from the date your tax return is lodged, and you also need to keep records of your ownership of the property and all the costs of purchasing/acquiring and selling/disposing of it for five years from the date you sell/dispose of your rental property.
If you are expecting a large tax refund at tax time you can access the funds in your pay cycle throughout the year rather than receive the money as a lump sum annually. This also especially is beneficial for your cash flows during the year. An Income Tax Withholding Application is an annual application that your accountant can lodge to the ATO and once approved, the ATO will notify your employer of the reduced/varied amount of tax to be withheld from your pay each period. This means that your net take home pay will increase.
Choose the right accountant
Choosing an accountant who is a specialist in property tax and property investment is invaluable.