Investors ‘under-claiming’ at tax time

In response, Mark Chapman, director of tax communications at H&R Block warned investors that the ATO would be aggressively pursuing those who over-claim deductions.

Despite the warnings, Terri Scheer Insurance executive manager Carolyn Parrella said landlords could be missing out on substantial tax benefits by under-claiming, and offered up a number of examples.

“Property investors who own apartments and/or units may be able to claim body corporate fees on strata or community title properties,” she said.

“Maitenance costs – usually associated with fixing something when it breaks – may be tax deductible, as well as maintenance expenses such as paying a gardener to mow the lawns or clear the gutters.

“Council rates, land taxes and sewerage charges might also be legitimate and claimable expenses. A landlord may wish to check with their accountant or financial adviser before completing their tax return to be sure these are appropriate.”

Ms Parella also highlighted the importance of understanding negative gearing and loan repayments at tax time.

“The interest paid by the landlord on the money borrowed for an investment property might be tax deductible,” she said.

“However, landlords must ensure that they only claim the interest because loan repayments on the principal are not tax deductible.

“Negative gearing – when the interest cost and other property expenses are more than the rental income itself – can make property investment very appealing for some people.

“By reducing income as a landlord, you may be able to reduce the income tax you pay.”

Property management and landlord insurance costs are also viable deductions that can be overlooked, Ms Parella said.

“Professional management and agent fees, such as the commission charged to collect the rent on your behalf, may also be a deductible expense for landlords,” she said.

“Property investors can [also] usually claim their landlord insurance premium as a tax deduction, but this is often overlooked.

“Some landlord insurance policies may provide cover for professional fees incurred as a result of an ATO tax audit relating to investment properties.

“It’s worthwhile checking your insurance policy and seeking professional advice to ensure you have the appropriate coverage.”

On the back of these recommendations, Ms Parella did caution investors not to get carried away at tax time. She noted that property investors often come under scrutiny at tax time and urged them to be prepared.

“The ATO website contains user-friendly information to assist property investors with their tax returns, which can help make tax time easier,” she said.

“…Landlords should seek their own professional advice or speak with an accountant or financial adviser to maximise their tax returns and ensure they are only claiming what can be considered a tax-deductible expense.

“There are many tax-related factors for landlords to consider before seeking this professional advice, which may make the tax-time process easier and more beneficial.”