CLAIMS WHAT WE DO
In the 2011-2012 financial year, the most recent Australian Tax Office statistics are available, more than 623,000 Victorians made claims for deductions on property rental costs. The most common are for board rates, 564,890 claims, water fees, 539, 890, insurance, 476,055, interest on their loans, 474,375, real estate agent fees, 443, 430, and repairs and maintenance, 437, 625. Less frequently claimed are fees. law, 15, 630, pest control, 19, 575, and cleaning costs, 62,835. H&R Block regional director Frank Brass says many property owners know most of what they can claim – but there are loopholes.
WHAT WE DON’T CLAIM
Most property investors probably don’t claim everything they can, according to Mr Brass. “Part of it is that it’s really hard to know what kind of records you need to keep and people just give up trying to keep them,” he said. “(And) they are afraid of doing the wrong thing.” But there’s no reason to be. If your records, receipts and invoices are in good condition and even if you have prepared them yourself, as long as you do so to the best of your ability and are not fraudulent, then the tax office generally understands, Mr Brass said. He also notes that you can claim a fifth of the cost of your loan for the first five years after you buy.
This compensates for the stamp duty and legal fees charged on the mortgage. Meanwhile, Bradley Beer, managing director of tax depreciation specialist BMT, estimates between 70 and 80 percent of investors are not getting the maximum return on depreciation claims. “The average first-year deduction for the first full year of owning the property is about $10,000, and over 10 years it’s about $7,000 per year,” Beer said. He describes depreciation claims as a way to have a wear value on your property structure accommodated by the tax office. “The building wears out, even if the property gains value,” Beer said. To get the most out of this, you may need to see a quantity surveyor – and not just a new property that can make a claim. “If you bought a house 10 years ago and five years ago spent $100,000 on renovations, there are things there that would still depreciate, even if you missed the first five years,” says Beer. Plus you can claim from the moment you rent it out, says Mr Beer. The same is true if you buy a property that has been renovated.
WHAT NEEDS ATTENTION
Mr Brass said many people are stuck when they withdraw equity in investment properties for personal use, and do not adjust the amount they claim to their advantage.
“You can no longer claim the full interest on the loan,” he said. “And what has caught people’s attention for years is that they don’t think about sharing interests.” There are instances where a couple can buy property under both their names but one of them makes a tax claim and Mr Brass notes that people have been caught up in this.
“You need to handle the property tax side according to the name on the title,” he said. He also says that if you claim depreciation, the claim will be returned to the Government when you sell the property and added to your capital gains tax payment. For vacation home owners, it’s important to remember that you can only claim them as an investment when you actually rent them out.
If you plan to sell, the capital gains tax exemption only applies to your primary residence during your stay there. A 50 percent tax deduction only applies if you’ve owned the property for more than 12 months.
CLAIMS TO CONSIDER
– Advertising for tenants;
– The cost of the owner’s company;
– Gardening and mowing the lawn;
– Loan interest;
– Quantity surveyor fee;
– Building materials including concrete, floorboards and tiles can be claimed as
depreciation;
– Carpets, trash cans, mechanical doors and blinds can also be claimed with age;
– Potential buyers of apartments and units also claim against common areas;
– Travel expenses for property inspections;
– Coverage;
*Source: BMT, Blok H and R and News.com.au