Fulfilling your Australian dream of building a house or investment property under your name may cost you a lot of money, but did you know that you can claim some of the taxes?
There are many tax benefits of rental property, but there is a whole process of availing them. For this, you need to study the current laws of Australia by visiting the ATO website to understand how you can claim every tax on investment property.
After going through the ATO site thoroughly, I would suggest that you read numerous blogs on deductible taxes and schedule a meeting with a tax accountant to get more knowledge and details of tax deduction on investment property from them in depth. They will guide you and streamline the process of claiming them. Based on their guidance, you may need to make some effort on your property if required and collect the essential documents that you may need during the tax filing process.
How to claim tax on investment property in 4 steps
From capital gain tax to water charges, you can claim tens and twenties of taxes, but it is important to know the process. The process is not rocket science, as we all think when we hear tax. It’s simple, instead. You just need to focus on the basics and follow the guidelines of an expert. I have highlighted major steps you need to take and pointed out key taxes you need to claim to have a maintained cash flow.
Keep everything ready regarding investment property deductions
Before consulting a tax accountant or expert, ensure that you have all receipts and documents because the government of Australia needs physical proof to give you your money back. Therefore, from buyer agents to financial accountants, all will suggest you to keep every piece of paper related to your property and investment safe in a folder. Here are the following documents that must be saved and used to claim tax on investment property:
- Contract purchase
- Settlement statement
- Loan documents
- Receipts of borrowing expenses
- Conveyancing documents
- Bank statements of earned rental income
- Timespan when the property is used as a residence
- Timespan when the property was in private use of relatives
- Depreciating assets
- Capital improvements
- Refinancing-related documents
- Capital gain calculator
- Contract of sale
- Sale of property fees
You may not have a few documents if you have not rented out the property or sold it, but it is suggested to save all documents as evidence so that your request will be accepted easily.
File tax deduction on investment property in July
Ensure to keep your documents prepared and get done with calculations regarding capital gains and other numbers by the end of June, because the next month is for individuals to file tax returns and claim deductions.
You can use some digital hacks provided by ATO to calculate all costs that you can claim and keep an eye on your application, such as the My Deductions app of ATO, and the CGT Calculator of My Gov.
These tools will make things feasible for you before you open the ATO site for tax returns. Such as a calculator will help you determine capital gains tax on investment property and the stamp duty amount too. I would suggest you to schedule a date for yourself to do all processes so that you would have a goal and a timeframe to follow, otherwise, we humans are experts in procrastination. Use alarms and sticky notes as reminders so that you prepare everything before that day.
File required investment property deductions
Once you are done with all the preparation, sit down on your couch, open the ATO site and file the tax deduction on investment property. According to Investor Partner Group, you can claim more than taxes, such as
Property management expenses:
It includes all the investment property expenses you incurred to maintain and manage the property, such as
- Strata fees
- Security petrol fees
- Pest control fees
- Advertising cost
- Gardening charges
- Cleaning fees
Land tax:
You can only claim this one if you are a first-time buyer and file your very first tax return with the Office of State Revenue.
Agent fees:
Paying money to an agent or agency to facilitate you in property investment is more like benefiting the government, which is why they are willing to pay you back. It includes
- Commission charges
- Lease document charges
- Statement fees
- Bank charges
- Petties and postages
Administration expenses:
It is an umbrella of rental property expenses which includes legal fees, postage of documents and electricity and gas expenses. The latter are repaid when tenants are not responsible for paying them.
Property insurance:
You can reclaim the following insurance charges:
- Public liability
- Contents
- Building
- Landlords
Repair:
It is only possible when you spend money to maintain the place after 12 months of purchase. If you invest in improving it, such as changing taps within the initial period, you cannot claim the tax in the short term. The cost will be covered in the long term. In case of short term, it is important to spend on such areas that elevate the property value, such as
- Plumbing
- Handyman fees
- Electrical expenses
Quantity Surveyor:
Claiming depreciation on investment property is the least-known deductible tax. If your property’s value is depreciating, you can claim tax on it, especially when it has wear and tear issues. For this, you need to hire a quantity surveyor to determine the property value and arrange a depreciation schedule to make tax deduction easier.
Interest-only home:
If you purchased a property on an interest-only home scheme, you can claim a significant portion of it, excluding the principal part.
Negative gearing:
When your mortgage and repayments are more than your rental income, it means you are going in a loss, called negative gearing. You can use this situation to your favor by claiming tax on it. It will generate passive income and increase cash flow along with rental income.
These are major taxes you can claim, so ensure to file for them with all legal and required documents to get your money back. You can use that money for next investment or for your other plans.
Don’t forget small stuff
Besides the above-mentioned taxes, you can claim many others as well, such as
- Accountant fees
- Work-related expenses
- Council rates
- Union fees
- In-house video/audio service charges
- Property investment seminar fees, and others.
All you have to ensure is to have receipts and statements so that you can attach them and claim tax on investment property.
It’s okay to ask for help with investment property expenses and taxation
Finance and taxation are pretty complex; it’s okay if you cannot understand them and need help to get done with tax deduction forms. Help from the expert will not only help you claim tax money but also save your time and keep you from making mistakes. Hiring an experienced tax accountant will guide you on how to claim tax on investment property yourself later in life by diving deep into the basics to make complex topics sound easy and understandable for you. Although they may charge a small fee, it will be worth it.
Conclusion
Investment property paves the way for you to claim taxes, but for this, you need to have knowledge about the current laws and new rules of rental property. You need to have a detailed conversation with the tax accountant to understand what taxes you can claim and how. Their experience and knowledge will help you go in the right direction. The ideal scenario is to hire a tax accountant to claim tax on investment property with them, so that you will understand the whole process and get your money back.
FAQs
How to claim interest on investment property?
You can claim 100% interest for investment property, but for this, you need to ensure that you use the loan for maintaining the property. It is also necessary that the property has generated some income to you.
Secondly, you must have documents related to the loan that show how much interest it had, and you need to use these details to add the deductible amount when filing a tax return on investment property expenses.
If all this process is new to you, consult a tax accountant to avoid mistakes and get it done with this method easily.
What documents do I need to claim tax on investment property?
Most importantly, you need settlement papers, ownership documents, receipts of loans and mortgages. If you have rented that property, you are required to have documents and bank statements that show how much you have earned from that property, and if you have sold it, you need other sets of documents that determine its capital gain, depreciation value and costing.
It is important to keep a record of everything because you are required to write the correct and precise amount when you are filing a tax return under the section of rental property.
How can a tax accountant help me in claiming tax on investment property?
A tax accountant has experience and knowledge of the current tax laws and regulations, due to which they can guide you comprehensively on the deductible taxes and how you can claim them. Hiring them will save you from trouble and unlock the way to get your money back. I would suggest you to file tax return with them so that you would learn the process too and understand the science behind taxation.
