07 Jul What property expenses are tax deductable
Last week we talked about the new regulations that are coming into effect this financial year for first home buyers. Given that it’s the new financial year, we thought we’d follow up last week’s blog post with a blog about what property investors can and can’t claim on their tax return. It’s best that you know early on, before you’ve filed your tax return, or early enough that you can amend it if you need to.
A lot of people get caught out by the Australian Tax Office thinking that they can claim things that they actually can’t. If you were to claim what you shouldn’t be, then best case scenario you would just end up with a tax bill, but in the worst case scenario, you could be fined a substantial amount, depending on the seriousness of the incorrect claim.
So what are these changes?
You can no longer claim for travel expenses
Prior to the 1st of July 2017, property investors could claim for any travel expense related to the property. If you were travelling to meet a tenant then that was tax deductible. You could also claim travel if you needed to go to your property to conduct an inspection and check the premises. That is no longer the case. To explain this further, you could claim travel expenses from the 1st of July 2016 until the 30th of June 2017, however you will need to be prepared to support the claim as this is one of the areas that the ATO is targeting this year.
Interest on investment loans
Although you can still claim for interest on an investment loan, you must be able to prove that the interest is directly related to your investment property, and that the expense will help you increase your income. You can’t therefore claim the interest on your home loan. If however you had one mortgage for your home and investment property, you would need to calculate the portion that was directly related to the investment property and only claim that component rather than all of the interest on the mortgage.
Airbnb or other short term rentals
The ATO is really cracking down on Airbnb hosts, who up until a year ago had an easy ride because the government hadn’t yet passed legislation relating to the platforms. They have now, and what that means is that if you generate any Airbnb income you must declare it on your tax return. Don’t think that you won’t get caught if you don’t because the government is also working quite closely with platforms such as Airbnb and others like Airtasker and Freelancer. The way you should see it is that it is still income and all income is taxed at the rate appropriate to your total income. You can check the exact amounts on the ATO website directly, or you can use one of many tax calculators online.
As it was alluded to, you can only claim for expenses that are directly related to the investment itself, so what that means is that if your home is only available for rent or lease for a limited period in the year, you can only claim for expenses related to that period, such as pest control or cleaning to get it ready for rent. You can’t claim expenses if it was sitting empty or if you were living in the property.
If in doubt, call the ATO or visit their website. If you’d like more investment advice though, directly related to your future plans then you can contact one of our friendly team members who will be able to help you.