The past year has raised new tax issues for mum and dad property investors, with many expected to cop a hit this tax time.
Over 2 million Aussies invest in property, but this tax time, many of them are facing unforeseen hurdles as a direct result of rental moratoriums, borders closures and COVID restrictions.
In a tax time warning to all property investors, CPA Australia cautioned of the ATO’s increasing access to new property data this income year, including property management and updated rental bond data covering millions of individuals.
“The ATO can see around corners when it comes to undeclared investment property income and capital gains,” said CPA’s senior manager of tax policy, Elinor Kasapidis.
“It’s perfectly understandable that COVID may have changed your investment property deductions and expenses, just make sure you have the records to back up your claims,” she said.
Key elements landlords are being advised to pay close attention to include insurance payouts and repayment holidays. Other circumstances which may affect a taxpayer’s claim are changes to property management fees and advertising during COVID.
Unfortunately, according to Ms Kasapidis, lost rental income can’t be claimed as a tax deduction and must be copped on the chin.
The good news, however, is “if you reduced the rent to enable your tenants to stay in the property, this doesn’t reduce your deductions for rental property expenses”, she explained.
These may include interest on investment loans, land tax, council and water rates, body corporate charges, repairs and maintenance and agents’ commissions.
Landlords may also be entitled to claim depreciation for the declining value of assets such as stoves, carpets and hot-water systems.
The fortunate few landlords that did receive back payments or insurance payouts for lost rent are being reminded to report these in their tax return.
Moreover, property investors that experienced financial difficulty making their mortgage payments and took up their bank’s offer of a repayment holiday are being reminded that they can deduct any interest paid on these deferred payments.
Recognising that some landlords stayed at their rental property or took it off the market during lockdowns, Ms Kasapidis explained that they’ll need to adjust their expenses and depreciation claims for the period it wasn’t available for rent.
“Make sure you can show how the split between private and commercial use has been calculated,” she said.
“Some taxpayers have purchased their first or subsequent investment properties in the property gold rush since COVID-restrictions eased. Now is the best time to talk with a tax agent about maximising your tax deductions next year,” Ms Kasapidis added.
Recent changes to tax rules
Adding to COVID-induced tax uncertainty, there’s still some confusion about changes to the tax rules for investment properties in recent years.
“Landlords can no longer claim travel deductions relating to inspecting, maintaining or collecting rent from their investment property,” Ms Kasapidis said.
“For properties acquired from 9 May 2017, landlords can no longer depreciate assets that were in the property at the time of purchase,” she noted.
She reminded that from July 2019, many investors can no longer claim deductions for vacant land, including while constructing or substantially renovating residential premises.
Australian taxpayers must also report foreign property investments in their Australian tax return.
“The ATO has information exchange agreements in place with foreign tax agencies. So, they’re receiving data on your overseas investments and income too.”
“The property market is also running red hot in other countries. If you sold property overseas, it’s likely you made a reportable capital gain.”