Rental property claims needn’t be a taxing experience

As any successful property investor will attest, making an income from rental properties is not an armchair ride to riches. It takes time, involves significant risk management and can get complicated – especially around the end of the financial year.

Many Australians rightly view property as a vehicle to achieving financial freedom, and with one of the world’s friendliest real estate tax regimes for investors, it can indeed offer rewarding financial returns. While Australia’s tax laws in relation to property investment may be supportive, they are anything but simple. To help investors through the tax maze that can spell the difference between positive and negative cash flow, Australian Property Investor Magazine spoke to Leah Oliver, founder of Minnik Chartered Accountants, who shared insights and tips on preparing for the end of the financial year.

Landlords often come under scrutiny from the ATO when lodging tax returns, so it is important they complete their claims accurately. Leah’s Top 20 Tax Tips, interspersed throughout this article, are an invaluable guide for all investment property owners.

1. Understand how your property investments are performing, and maximise your deductions using XERO Cashbook (or similar software packages)

2. Support your software file with necessary substantiation

3. Prepare an electronic file for your accountant, including all documents

4. Review real estate agent rental statements for accuracy

5. Ensure all deductions are included in rental statements, e.g. advertising for tenants

“The amount of rental income an investor can expect to claim depends very much on the earning power and age of the property, and whether the property is debt funded, or geared, but on average, for positive property investments without debt and no depreciation, you can expect to claim at least 30 to 40 per cent of income,” Ms Oliver said.

“Where the property is built within the past 5-10 years, there may be depreciation claims to account for that can enhance claims to approximately 60 to 70 per cent, depending on asset value and the extent of structural works.

“For a negatively geared property, you’re generally looking at around 100 per cent.”

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*Craig Francis - API Magazine March 2021