Do you make the most out of your potential tax deductions?
Do you keep good records to substantiate your tax claims?
Well you should because the ATO regularly targets property investors, so it’s important that you know what you can and cannot claim as a tax deduction.
Of course expenses incurred in earning income, such as running your investment properties can be claimed as a tax deduction, but they generally fall into 2 groups:
1. Capital costs 
An example are those associated with the purchase of the property.
Now here’s where some investors make a mistake – these costs are not deductible against the rent you receive or against your other income.
They are added to the cost of the property so that when the property is sold it reduces your Capital Gains Tax.
The main ones are:
- Conveyancing costs
- Stamp Duty
- Legal Fees
- Search Fees
- Buyers’ Agency fees
- Costs involved with Borrowing money from the bank. These can be claimed over the period of the loan or 5 years whichever is shorter.
- Mortgage Insurance
2. Running costs that are incurred to maintain the property and can be claimed against the rental received.
Basically these costs are anything spent on maintaining the property, such as:
- Ineterst on your loans, but not principle repayments
- Managing Agent’s fees
- Council fees, water rates,
- Body corporate fees
- Insurance
- Advertising
- Bank charges
- Depreciation
- Garden maintenance
What about Repairs?
Repairs to your investment property can be a tricky area as they can fall into one of two categories:
- Repairs: To maintain or repair means to replace to its original condition. So you can claim the cost of repairing a wooden fence back to a wooden fence.
- Improvements: If you were to improve on the original condition of an item this becomes capital expenditure and you can only depreciate this cost – not write it off as an expense straight away . For example if you were to replace a wooden paling fence with a brick fence.
Helpful tips on record keeping
Your investment property should work for you and not the other way around.
So it’s important that you are not burden with hours of paperwork that discourages you from buying your second or third properties.
The best way to manage your records for tax with a minimum of fuss is as follows:
1. Ask a real estate agent to manage the property for you and get them to pay for all expenses from the rent they collect for you. You’ll get a monthly summary and at the end 
of the tax year they should provide you with a summary of all rent you’ve received and all the expenses paid on your behalf. You can than then give this your accountant.
2. Keep records of any expenses you pay yourself. Be careful to avoid recording the expenses paid by your real estate agent as you will run the risk of claiming the expenses twice.
3. You don’t need to give your accountant the receipts, but file them away in case you are asked for them in an audit by the ATO.
4. You can provide your bank loan statements to your accountant or you can simply summarise the interest paid on your loans on a spreadsheet.
5. The first year is the most complicated because it involves creating a “Purchase Sheet” that is carried forward from year to year so that when you sell you have accurate records of what was incurred to determine your Capital Gains Tax 
6. Don’t forget to get a Depreciation Schedule from a Quantity Surveyor as your accountant is not permitted to estimate fixtures and fittings or building values. This is a very important item as it allows you to claim an expense without having to pay cash for it. It’s simply a paper deduction but allowed to be claimed against real rent received.
7. If you have carried out renovations make sure you have a “Scrapping Schedule” that allows you to claim the items you have demolished as a tax deduction.
8. Make sure you use a tax accountant who understands property .
How to stay ahead…
Why not discuss your individual needs & let Ken Raiss, director of Metropole Wealth Advisory, formulate a Strategic Wealth Plan for you, your family or your business?
We offer you guidance and support that contribute to seamlessly combining the essential financial areas of your life. 
Whether you are a business owner, a professional or a high-income earner we provide you with an individually tailored solution integrating the core disciplines of taxation, superannuation and property investment interwoven with finance, asset protection, succession and estate planning, personal risk insurances and philanthropy.
Using our depth of skills in these core disciplines, we adopt a coordinated project management approach and access other specialists as needed to further enhance our integrated advice solution.
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Disclaimer
The article is general information only and is intended as educational material. Metropole Wealth Advisory nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives.
from Property UpdateProperty Update https://propertyupdate.com.au/tax-and-helpful-record-keeping-tips-for-your-rental-property/
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