As a landlord of a residential investment property, there are things that you should know and things to prepare in the lead up to preparing your income tax.
We have prepared “Lets talk tax” to help ensure that you are entitled to the maximum benefits when it comes to income tax.
Things you should know:
Rental Income Rental Income is the full amount of money you earn when you rent out your property. You must include any bond money retained in place of rent or kept because of damage to the property requiring repairs. An insurance payout for lost rent or a reimbursement of any rental expenses you claim in any tax year or claimed in an earlier year must also be included as income.
Expenses You can claim expenses relating to your rental property but only for the period your property was rented or available for rent.
Expenses could include advertising for tenants, bank charges, body corporate fees, borrowing expenses, council rates, decline in value of depreciating assets, gardening and lawn mowing, insurance, land tax, pest control, property agent fees or commissions, repairs and maintenance, stationery, telephone, water charges and travel undertaken to inspect the property or to collect rent. If only part of your investment property is used to earn rent, you can claim expenses relating to that part only. You will need to work out a reasonable basis to apportion the claim. For example, if your investment property includes a 4 bedroom house and you exclude from the tenancy one of the bedrooms for landlord storage purposes, you must apportion the floor space of the excluded room and you can only claim the percentage of property expenses comparable to the percentage of rent producing property. See tax ruling IT2167 – Rental Properties, this will give you more details on apportionment.
Prepaid Expenses If you prepaid a rental property expense such as insurance or interest on money borrowed, that covers a period of 12 months or less and the period ends on or before 30th June 2009, 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 $1,000.00 or more.
Co-Ownership If the title deed shows that you were a part owner of the property, include only your share of the rent and expenses on your tax return. For example if you own the property with one other and both names appear of the title deed as equal share owners, then you need to include 50% of rental income and 50% of deductible expenses for the property.
Capital Works You may be able to claim deductible expenses for construction costs of your property over a 25 year or 40 year period called a capital works deduction. You qualify for the deduction on your rental property if construction began after 17th July 1985 and the property is used for residential accommodation. The rulings differ for residential short term accommodation and commercial properties and they have different eligibility criteria. A deduction may also be available for structural improvements made to parts of the property other than the building if work began after 26th February 1992. These could include sealed driveways, fences and retaining walls. Deductions do not apply until completion of the construction. The deduction is at the rate of 2.5% or 4% (adjusted for part-year claims) depending on the date the capital works began. Your accountant will help you determine if you qualify and the appropriate rate.
Deductions for decline in value of depreciating assets You can claim a deduction for the decline in value of certain items know as depreciating assets that you acquire as part of the purchase of your property or that you have subsequently purchased for the property. The definition of a depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over time as it is used. The best example of a depreciating asset in a residential rental property is the stove or oven and cook top. As a general rule, items with a purchase value of $300.00 or less are not depreciated and can be deducted fully in the tax year of which they were purchased. Low value assets (assets with a purchase value of less than $1,000.00) can be deducted under the diminishing value rule. Please check with your accountant for eligibility. Most other items with a purchase value over $1,000.00 will form part of your property depreciation schedule and will be depreciated over a period of years.
What you need:
You will need details of all your rental income earned, interest charged on money you borrowed for the rental property, records and invoice copies for all other expenses relating to your rental property and all documentation relating to any expenditure on capital worksto your rental property.
Article provided by the Brock Harcourts State Office
Require help with your Investment Property? or would like to know it’s current rental value?
Then call Christine Mostaki our Executive Property Manager on 0401 606 600 or e-mail metrorentals@brockharcourts.com.au
