As a Property Investor what can you claim? 

There hasn’t been a year go past in recent times that a directive hasn’t been issued by the ATO that this year we are cracking down on claims via property investors. This just goes to show that the ATO see this as an area where there is potential leakage of revenue due to incorrect claims.

This year the ATO has said that more than 100,000 property investors will be contacted. Here are some useful tips to ensure you comply if you receive that ATO letter.

1. Ask your Agent for a yearly summary of rents and expenses, this saves you heaps of time and allows for less errors

2. Ensure you have a Quantity surveyors report to back up the depreciation claims

3. Ask your bank to provide you with an annual Loan interest summary that relates to each property so you claim the appropriate interest against the appropriate property.

4.If you have undertaken any major works to your property be careful what you can claim as a repair vs a capital improvement, this is an area the ATO likes to focus on because many people get it wrong because it is  quite grey . A repair is fixing something to bring it back into close to original workable condition a capital improvement is replacing it with something better. To provide an example if you had an oven and you just replaced the fans is a repair vs purchasing a new oven , if you replaced the roof tiles of the entire roof  with new terracotta  vs replacing a few broken slate tiles it is capital, if you replaced your old Kitchen with a new kitchen is capital. A word of advise if the amount is substantial this will more than likely trigger an audit so seek professional advice beforehand  or even go to the extent of contacting the ATO themselves for a ruling

5. Depending on the size of your portfolio you are entitled to claim an apportionment of things like use of home computers and home office costs to manage the properties, travel to view the property if the sole intention is just that, however if the intention is say 50% to view property and 50% to holiday you will need to keep a diary record and receipts to justify the apportionment of expenses including airfares and accommodation.

6. If you have purchased an investment property in the last financial year prepare a purchase statement which includes the purchase price, legal costs, stamp duties, borrowing costs and other capital costs which are not tax deductible but carried forward to form part of the cost base so if and when you sell you will have this information to help reduce the capital gain tax payable at that time.

7. Land tax paid by you for the property is tax deductible.

8. Always seek professional advice if in doubt, as fees paid to professionals like your accountant who has provided accounting advice and assisted with the compliance is fully deductible.

One last thing is that we recommend is that you get your work to your accountant on time to avoid the standard rush periods which helps avoid late lodgement penalties. Also note that the ATO standard work related deduction amount of $500.00 does not apply till the 2012 year this standard deduction would be available regardless of whether relevant expenditure was actually incurred. For example, a person who completes their own tax return would be able to claim a deduction for their own efforts.  The standard deduction will translate into a $157.50 saving for a person on a 30% marginal tax rate in the first year of the measure; it remains at $300.00 for 2011. 

Above all else if in doubt we recommend you seek professional advice when lodging your tax returns, the tax deductible fee paid to the accountant may be a lot cheaper exercise than getting it wrong and triggering an ATO audit.

Important notice and general advice warning:

 This information is of a general nature only and is not intended to represent investment or professional advice. This information does not take into account your individual objectives, financial situation and needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A Product Disclosure Statement (PDS) for the products mentioned in this communication should also be obtained and you should consider the PDS in deciding whether to acquire, or to continue to hold, any investment.  

The information contained in this document is given in good faith and is believed to be correct at the time of publication, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omission (including responsibility to any person by reason of negligence) is accepted by Chan & Naylor Pty Ltd, its officers, employees, directors and agents.