End of financial year is fast approaching, and there are some big tax considerations for property investors that will keep portfolios running smoothly and above board.
For properties purchased after May 2017, there are new restrictions on deductions for the decline in value of previously used plant and equipment in rental premises used for residential accommodation.
Despite the rule changes, BMT Tax Depreciation chief executive Bradley Beer believes there are still lucrative tax deductions on offer for most investment properties.
“We found an average of $8,212 in deductions in the [2017-18] financial year for all residential investment properties,” he said.
“Tax depreciation can dramatically increase the cash flow from an investment property, so savvy investors should look to attain a basic understanding of the rules and assemble a strong team of advisers to help take advantage of them.”
2. Travel costs
Travel costs for individual investors inspecting and maintaining residential investment properties will no longer be deductible and will come into effect retroactively from 1 July 2017.
“Some additional confusion’s been caused, particular in relation to the travel, because if you actually look at the tax return, there is still a box there where you can claim travel, even though the law says you can’t, and I think that has tripped up some people,” according to H&R Block.
“The ATO have got a real focus on property investors at the moment. They believe that some property investors are claiming excessive deductions or claiming for things that they’re not entitled to at all.”
3. Investment loans
Boss of the ATO, Chris Jordan, said audits have found incorrect apportionment of a loan, meaning investors are potentially over-claiming.
“We’re seeing incorrect interest claims for the entire investment loan where it has been refinanced for private purposes," he said.
It is significantly easier than years gone by for the ATO to track loans and bank-related activity, given the availability of third-party data.