Tax time tips for property investors

Tax time tips for property investors

As we arrive at tax time once again, here are some handy hints from the ATO for property owners who receive rental income. This is just a general summary and as always please ask your tax professional for tax advice best suited for your personal situation.

Being tax-smart when investing in property means more than making the right property choices. If you use your property to earn income at any time, you will have tax obligations and entitlements.

If you sell an investment property or your main residence that you have rented out, remember:

• You may have to pay capital gains tax, even if you transfer the property into someone else’s name.
• A capital gain is the difference between your cost base (cost of ownership) and your capital proceeds (what you receive when you sell the property or the market value when you transfer the property).
• If your costs of ownership are greater than your capital proceeds, a capital loss should be included in your return and this amount may reduce future capital gains.
• If you have claimed a deduction for capital works or depreciation in any income year, your cost base should not include these amounts.
• If you own the property for more than 12 months, and you are an Australian resident, you may be entitled to a 50% discount on tax on the capital gain.

Investment property owners should remember these three tips when preparing their tax returns:

1. Include all the income you receive
This includes income from short term rental arrangements (eg a holiday home), sharing part of your home, and other rental related income such as insurance payouts and rental bond money you retain.

2. Get your expenses right

• Eligibility – Claim only for expenses incurred for the period your property was rented or when you were actively trying to rent the property on commercial terms.
• Timing – Some expenses must be claimed over a number of years.
• Apportionment – Apportion your claim where your property was rented out for part of the year or only part of your property was rented out, where you used the property yourself or rented it below market rates. You must also apportion in line with your ownership interest.

3. Keep records to prove it all

Property owners should keep records of both income and expenses relating to your rental property, as well as purchase and sale records.

Here are some record keeping tips:

• Set up an easy-to-use record-keeping system as your first priority. This can be as simple as a spreadsheet or you can use professional software.
• Keep records of every transaction over the period you own the property. This includes contracts of purchase and sale, as well as conveyancing and loan documentation.
• Scan copies of your receipts to make it easier to store and access them.

Remember: Keeping proof of all your income, expenses and efforts to rent out your property means you can claim everything you are entitled to.

If you require an up to date appraisal of your home, please don’t hesitate to get in touch.

Adapted from an article from the Australian Taxation Office website, 2023.