The tax deadline of October 31 is approaching. For property investors, in particular, failing to act quickly and responsibly may result in a lower return or in some cases even a penalty. By lodging your return through a registered tax agent your deadline can be extended without incurring any penalties.
Penalties may apply in cases where the ATO is owed money. Delaying lodgements may also mean investors miss out on maximising claims for repairs, maintenance, and capital improvements.
Many investors make claims incorrectly due to not understanding how, or because they are not working with an experienced accountant specialising in investment property returns. Research by BMT indicates almost 80% of property investors make deductions incorrectly, this includes not claiming enough.
Here are our top 3 tips for Property Investors who are yet to make their tax return:
- Ensure you understand the difference between the three categories for deductions
To make deductions correctly, investors should be aware of the differences between capital improvements, maintenance, and repairs. There are different ways to claim each expense.
Repairs: a repair is when you fix damage to an existing structure or item. For example, fixing a broken fence. This expense should be claimed immediately in the same year.
Maintenance: maintenance costs are associated with the prevention of damage. For example, cleaning the gutters. This expense should be claimed immediately in the same year.
Capital improvements: capital improvements relate to costs associated with increasing the value of the home beyond the original value. For example: building a carport or replacing carpet with floorboards. This expense should be depreciated and claimed as either plant and equipment depreciation or a capital works deduction. This expense should be depreciated and claimed over time.
- Ensure you have a depreciation schedule – this is a must!
A depreciation schedule is a prepared report that an accountant uses to accurately make claims against the value of items. A depreciation schedule will allow property investors to make claims on items that reduce in value due to wear and tear over time but are still relevant in the taxable year.
For example, a landlord may purchase a new air conditioner valued at $1,000 with a lifespan of 10 years. Using a depreciation schedule, the investor’s accountant may be able to claim $100 per year against their taxable income for 10 years.
These claims accumulate when you consider all items that depreciate in value. This is why a depreciation schedule is so important when trying to maximise returns.
- Ensure you are working with an experienced accountant and lodge by October 31, 2017
It is important to use an accountant who has experience in managing property investment tax return as these returns differ from standard individual returns. If you don’t have an accountant on your side this tax time – talk to us.