Property investors: how to navigate the tax return minefield

Up to 90 per cent of investment property owners are making mistakes on their returns leaving millions unclaimed in tax returns. Here’s an 11th hour guide.

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Every year at this time we start to hear the catchphrase: “It’s that time of year”.

I’m referring to the end of the financial year, and dreaded start to tax return season.

For investors in the property market, and there were more than two million of you in 2018, according to the latest available figures from the Australian Taxation (ATO), filing an annual return can be a daunting and arduous process.

Most will put it off to the last minute, lodging it at the 11th hour on deadline day – October 31.

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Yet there are reasons why you might want to get yourself a little more organised this year.

The first is that a review of individual tax returns by the ATO last year found that up to 90 per cent of investment property owners were making mistakes.

The second is that the ATO has announced that it will be cracking down on rental, holiday and investment properties. So if you don’t get it right it may lead to you having to start again, face a fine or, worse, an audit.

Buying agent and property strategist Lloyd Edge said excessive expense claims and incorrectly appointed rental income and expenses between owners would, in particular, be under the microscope.

Investment property guru James Fitzgerald says investors are missing out on significant returns because of uncertainty around what can be claimed.

“So it’s important to be fully equipped with the right information and tools,” he said.

Yet what property investors should find even more concerning is the fact that they could be leaving thousands of dollars in the pocket of the ATO because they don’t fully understand what they can claim in depreciation.

Property investment expert James Fitzgerald said do-it-yourself tax lodgers, caught up in the false economy of not paying an expert, failed to realise that they were missing out on potential tax reliefs.

“Understanding how to calculate depreciation on your property and the difference in the rules regarding new and older homes, is essential to maximising returns,” Mr Fitzgerald said.

“It doesn’t matter whether you bought the property this year, or a couple of years ago. It’s not too late.

“A lot of investors are focused on capital growth right now, but the expenses you can claim, including depreciation, before that capital growth is realised can make a massive difference.”

Mr Fitzgerald said if a property was built after September 1987 investors could claim depreciation on the building’s structure and items considered permanently fixed to the property, such as solar panels and security systems.

This house at 22 Rumrunner Street, Mermaid Waters, is for rent for $1100 a week through REMAX.

“Investors can also claim depreciation on internal fixtures such as floor and window coverings, appliances and air-conditioners,” he said.

Mr Edge said it did not matter if the depreciating asset installed was new or used, or if the property was new or not.

Other things you can claim back tax on, according to Mr Edge, include the interest charged on the loan you used to purchase a rental property or a depreciating asset. borrowing expenses such as loan establishment fees, title search fees and the cost of preparing and filing mortgage documents.

However, you cannot claim on the loan balances for the property or the stamp duty charged on the transfer of the property title.

Mr Fitzgerald said figuring all this out could be complex and investors should not rely on guesstimates.

So if your tax return is starting to look a little too complicated, or you just don’t have the stomach for it, seek the help of a tax professional. It could be the best money you spend all year.

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Originally published as Property investors: how to navigate the tax return minefield