But being overzealous – or just plain ignorant – about the expenses you can legitimately claim can see you owing interest on tax debts, coughing up penalty fees to the Australian Tax Office and even winding up in court.
Good advice can save property investors thousands of dollars and administrative nightmares, according to John Knight of Brisbane-based advisory firm businessDEPOT.
“It’s really easy to get caught out if you don’t know what you’re doing,” he said.
“I once had a client who wanted to claim the full cost of a deck extension on their investment property. Unfortunately you can’t claim this as a repair and must treat it as a capital cost.
“If they had gone ahead and submitted their tax return, without seeking professional advice, the ATO could have easily identified their error and enforced penalties and interest. On top of that if they were hoping to pay off the deck extension with part of their tax refund then they were in for a rude shock.”
Make sure you avoid these 10 common mistakes property investors make at tax time.
- Claiming an expense that has not been incurred, for example by relying on a quote.
- Claiming capital costs outright, such as renovations.
- Claiming the full amount of an expense for a property with a mixed purpose – beware the ATO has recently cracked down on holiday homes which are also used privately.
- Claiming an expense where record keeping and substantiation requirements have not been met – unfortunately you do need to keep those invoices.
- Claiming an expense for the period during which the property was not available for rent, for example, costs incurred when you moved out of your home but before it was available for rent.
- Claiming capital works deductions incorrectly, for example relying on your own estimates instead of using a professional depreciation report.
- Claiming the expense under the wrong entity.
- Claiming the expense in the wrong income year, such as a prepayment on repairs not yet underway.
- Forgetting to claim tax losses from a previous income year.
- Claiming interest on a loan against an investment property just because that property has been mortgaged for the loan – you cannot simply shift loan deductibility by changing the property against which the loan is secured.
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