How to maximise your tax return for property investors

Take some time out to gather together all the information you will need to help you prepare your tax returns, including invoices and receipts for expenses you want to claim in relation to your investment property and any bank/credit card statements that contain details of expenses that you no longer have (or never had) receipts or invoices for.

If you’re not sure if it’s claimable, collect together the receipt or invoice anyway and discuss it with your tax agent. If you don’t have the paperwork, you can’t claim a deduction so it makes sense to set aside this time in advance of the end of the financial year to spare yourself a stressful document hunt while you’re actually in the process of getting your return prepared!

In addition, if you’re claiming any expenses that have a private element (such as for the use of a personal mobile phone), set some time aside to work out what a reasonable apportionment is for the bit that relates to your property investment activities (such as speaking to tenants or agents).

In addition, make sure you have proof that your property was available for rent, such as rental listings. You may have lost a tenant and then experienced a longer than normal period of vacancy due to a downturn in the rental market. You’ll still have incurred fixed expenses through that period, however, and you’ll want to claim a deduction for them, which is only possible if the property was available for rent so being able to demonstrate that to the ATO is more important this year than ever.

Are there any tricks on getting the best tax returns?

Yes, check with your tax agent that you are claiming everything that you are entitled to.

As well as the obvious deductions like mortgage interest and repairs, you may not know that you can claim for the following:

• Prepaid expenses. If you pay an item of expenditure this year that wholly or partly relates to next year, you can a claim a deduction for the full amount this year. This is particularly useful with expenses that straddle the tax year, such as insurance policies or subscriptions.
• If you use your home phone, computer or internet services, or your mobile phone as part of the management of your investment property, you can claim an appropriate proportion as a tax deduction.

It can also be worthwhile getting a quantity surveyor to quantify the depreciation claims that you are entitled to. Depreciation is generally one of the larger deductions; it is difficult to correctly work out and many home owners miss out on potential deductions by incorrectly claiming.

Get repairs done in time

Many property owners incur significant expenditure on repairs to their property that would normally be tax deductible, but that isn’t always the case.

Deductions for repairs are allowed to the extent that they relate to the period of time during which the property was rented and provided the expenditure was incurred in the same year.

Deductions are not allowed if either or both of the following occurred:

• The repairs relate to defects that were not linked to the income-producing activity (for instance, a defect that arose after the tenant moved out and unrelated to the tenancy).
• The repair expenditure was incurred in the tax year after the tenant moved out.

If your tenants have moved out during the year, make sure you undertake any repairs before the end of the year to lock in a tax deduction. That might not be so important if you intend to find another tenant next year, but if you don’t intend to replace the tenant (for instance, you’re thinking of selling), it’s vital that you incur that expenditure by 30 June.

What are some of the things property investors can claim during tax time?

Of the various items of expenditure that you might incur in running a rental property, probably the most significant is the amount you pay on your mortgage. The interest element of your mortgage repayment is deductible for tax purposes.

In addition to interest relating to the property acquisition, you can also claim a deduction for interest on loans taken out to: carry out renovations; purchase depreciating assets (for example, furniture); make repairs or carry out maintenance; or purchase land on which a property is to be built.

There are lots of other things you can claim, some more obscure than others. If any of these apply to you, make sure you include them in your tax return:

• Advertising for tenants, including costs passed on by letting agents.
• Cleaning at the end of a tenancy (including removal of rubbish).
• Estate and letting agents (including management fees).
• Gardening and lawn mowing (including felling or pruning trees).
• Secretary and bookkeeping fees associated with the collection of rent and payment of property expenses.
• Bank charges on the account used to receive rent and pay expenses.
• Council rates and land tax.
• Insurance (building, contents or public liability).
• Credit checks.
• Pest control.
• Bank or solicitor fees for keeping title documents safe.
• Taxation advice relating to the property (including possibly the cost of this magazine!)
• Legal expenses to eject a tenant for non-payment of rent.
• Hiring a debt collector to collect rent arrears.
• Getting new keys cut.
• Servicing items such as hot water heaters, smoke alarms, air-conditioning systems and garage door mechanisms.
• Water supply charges (to the extent that they aren’t paid by the tenant).
• Quantity surveyor.
• Security patrols.
• Security system monitoring and maintenance.

Mark Chapman is the director of tax communications at H&R Block.