There are new tax laws in play this tax time that property investors should be well versed in, and some features on tax return forms that could get you in trouble.
Property investors will no longer be able to claim travel expenses to inspect residential investment properties, as per a measure introduced in the 2017 federal budget.
Mark Chapman, director of tax communications at H&R Block, has seen a lot of confusion from property investors this tax time related to this measure, particularly as there is still a provision to claim travel on tax forms.
“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,” Mr Chapman told Smart Property Investment.
“Essentially, if you are running a rental property portfolio, if you’ve got rental properties, you just can’t claim travel for the tax year that’s just gone. Any deductions cease to be available at the 30th of June, 2017. So, from the 1st of July 2017 onwards, there’s no claim,” he explained.
Although this travel allowance has been largely scrapped, there are certain taxpayers who can claim a deduction for travel expenses incurred relating to their rental property from 1 July 2017, including if:
- you are an excluded entity, or
- you are using the property in carrying on a business (including a rental property business), or
- the property is not a residential rental property.
"Given there are taxpayers who fit the criteria above, it is necessary for return forms to have provision to claim the deduction," ATO assistant commissioner Kath Anderson told Smart Property Investment.
"Best practice for investors is to talk to their agent about the deductions they can and cannot claim, and familiarise themselves with the changes by reviewing the ATO website," she added.
More broadly, Mr Chapman said property investors should be cautious that the ATO is particularly focused on deductions related to investment properties this year.
“It is definitely worthwhile ensuring that you get those tax claims correct, that you disclose all of your income properly, but equally, you do actually claim everything that you are entitled to, because there are lots of deductions that property investors can potentially claim, some of which are quite obscure," Mr Chapman said.
“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,” Mr Chapman added.
If property investors are the client of a tax agent, the deadline of 31 October does not apply for them, and instead have as long as May 2019 to finalise their returns.
“Tax agents operate on slightly different rules – the ATO by concession, gives them a longer lodgment window, so that means if you are a client of a tax agent, the 31st of October deadline, to be honest, is not that relevant,” Mr Chapman said.
“Professional advice is always worth having in terms of getting your taxation affairs straight in terms of making sure you’re claiming everything you’re entitled to and not anything you’re not entitled to.”
However, this only applies to clients of existing tax agents as of 31 October 2018, so investors without a tax agent must incur late fees.