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Common errors of new rental property owners
Putting your money into bricks and mortar has been a traditional stalwart of investing for generations of Australians. It continues to be viewed as a solid place to park spare cash and build wealth in the long term. For many years a lot of us seem to have heeded the quote attributed to Mark Twain: “Buy land, they’re not making it anymore.”
Although property has the reputation of being less volatile than say the sharemarket, this isn’t necessarily always the case. Valuations for property can rise or fall depending on many influences, and interest rates are ever changing, which makes maximising allowable tax deductions a priority for every rental property owner.
However, it is not uncommon for first-time rental property owners to make some mistakes when claiming rental deductions on their first tax return as a new landlord. These mistakes could end up being costly with the Tax Office increasing its focus on rental property deductions for the 2013-14 tax year.
What are these mistakes?
The Tax Office has identified some of the common errors that have been made by rental property owners in past income years. These include:
Which deductions are allowable?
There are two categories of rental property expenses you can claim:
While a “non-capital” outlay to repair damage, defects or deterioration can be claimed as an immediate deduction, other costs associated with a substantial structure, such as a fence, are considered to be capital expenditure and need to be deducted over a number of years.
The amount of time the deduction for such capital expenditure is spread across depends on the type of expense incurred. For example, borrowing expenses in respect of a loan is spread over the lesser of five years or the life of the loan, assets that depreciate in value do so over their “effective life”, and certain construction work deductions may even have to be spread across 40 years.
Below are further sundry costs that would typically be deductible:
TIP! Remember to keep accurate records so we can ensure you only pay the right amount of tax.
What you cannot claim
Common expenses that are not deductible include:
The above is not an exhaustive list of all claimable and non-claimable rental property expenses. Contact this office for more, and for a full list of depreciation tables for capital expenditure deductions.
DISCLAIMER:All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The article is produced by Property Way (ABN 57 141 982 934)