Common mistakes landlords make when filing their tax return
It’s that time of year that we all dread… 30 June is the end of the financial year, which means we need to be thinking about filling in our tax return.
If you hate doing it, you’re not alone; according to new research commissioned by Intuit QuickBooks, conducted by YouGov, almost 20 % of NSW residents would rather pick up dog poop than complete their tax return in 2023, 11 % would prefer to get stuck in an elevator with a sweaty stranger and
18 % would prefer to take the middle seat on a long-haul flight.
Indeed, it seems Aussies will do just about anything to avoid filling out their taxes,
However, tax is one of life certainties, and with around 1.7 million owners of rental properties in Australia, the Australian Tax Office (ATO) is putting the spotlight on private landlords’ tax returns.
In a speech late last year, Second Commissioner Jeremy Hirschhorn said:
‘Finally, property investments, which covers the full spectrum from true investment properties through to holiday homes which are occasionally rented out. Currently rental income and deductions contributed over $1 billion to the net tax gap. In the 2020–21 tax return (as of 30 June 2022), over 2 million rental property owners declared over $45 billion in income and about $43 billion in expenses.
The Random Enquiry Program that helped determine this estimate showed that 9 out of 10 returns reporting net rental income required adjustment. This is startling and clearly something we need to address.’
The ATO also recently announcing its data-matching program for the 2021-22 to 2025-26 financial years, with the aim of at capturing information about residential investment property loans.
Getting your tax return right
In an article for The Conversation, Dale Boccabella, Associate Professor of Taxation Law, UNSW Sydney, suggests common incorrect information on tax returns includes:
- not declaring rental income
- not declaring the capital gain on the sale of the rental property
- claiming the main residence exemption under the capital gains tax for the profit on sale of what is really a rental property
- claiming interest deductions when a property is not truly available for rental, being a holiday home
- wrongly claiming capital expenditure as an immediate deduction
- assigning all rental income deductions to one spouse when the loss-making property is co-owned
- claiming deductions for the full cost of travel to a property when the travel was partly for other purposes such as holidays.
Dale also outlines in the article where reforms have been made.
ATO has some hefty penalties if you don’t get it right too, so it is important that you are open and honest with the information, have evidence of it, only claim what you can, and ensure the cost claim is correctly assigned.
- Use financial specialists
While there is a Tax time toolkit for investors on the ATO website, one of the best ways to ensure your return is filed correctly is to use a property financial specialist (your accountant or financial advisor).
They will know exactly what you can and can’t claim for, what is or isn’t a capital works deduction, and will ensure you’re not claiming for anything you shouldn’t be.
Furthermore, an expert will be on top of all the latest legislation and can advise of any changes.
Of course, paying for their services is usually a tax-deductible expense!
- Use a property manager for added benefits
We know we’re biased but employing a property manager is not only a tax-deductible expense, but they can also help reduce the time spent preparing your tax return.
As well as saving you time with managing your investment property, such as finding a tenant and managing your maintenance, we also manage and correctly record the financial outgoings and rental income paperwork. We send a copy of this to you at the end of each month, and also a final one at year-end to give to your accountant.
Plus, you can view all your monthly financial statements, and lots of other information such as current and past repairs and routine inspections, 24/7 through our dedicated online owners portal.
With many of our team having investment properties themselves, we are always exchanging ideas and coming up with solutions.
If you want to know more about our property management services or investing in property, get in touch. Our motto is very simple – we treat every property as if it’s one of our own, and we’ve helped thousands of people realise their financial goals through property.
Our aim is to make your life easier and your property experience exceptional. Simply give us a ring on 02 4956 9777, send us an email to mail@newcastlepropertymanagement.com.au or pop into our Cardiff office for a chat.
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