Tax time focus on rental property income and deductions
Concern 1: Include all rental income
The ATO receives rental income data from a range of sources including sharing economy platforms, rental bond authorities, property management software providers, and state and territory revenue and land title authorities.
When preparing tax returns, make sure all rental income is included, such as from:
- short-term rental arrangements;
- renting part of a home; and
- other rental-related income like insurance pay outs and rental bond money retained.
Concern 2: Accuracy of expenses
Not all expenses are the same – some can be claimed straight away, such as rental management fees, council rates, repairs, interest on loans and insurance premiums. Other expenses such as borrowing expenses and capital works need to be claimed over a number of years.
Capital works can include replacing a roof, or a new kitchen renovation. Depreciating assets such as a new dishwasher or new oven costing over $300 are also claimed over their effective life.
Refinancing or redrawing on a rental property loan for private expenses such as holidays or a new car, means that the amount of interest relating to the loan for the private expense can’t be claimed as a deduction.
If income from a rental property in a holiday location is earnt, it needs to be included in tax returns.
Concern 3: Capital Gains Tax upon sale of a rental property
When selling a rental property, capital gains tax (‘CGT’) needs to be considered and any capital gains or capital losses need to be reported.
When calculating a capital gain or capital loss, it’s important to get the cost base calculation right. The cost base is usually the cost of the property when purchased and any costs associated with acquiring or selling it.
These can be things like stamp duty, legal fees, valuations and real estate sales fees. Any capital works claimed as deductions may also need to be subtracted from the cost base.
Records of all income and expenses relating to rental properties, including purchase and sale records, must be kept. This ensures all eligible deductions are captured when preparing tax returns and capital gains tax can be calculated correctly when the property is sold.
It is also important to note that when selling any property for $750,000 or more, vendors/sellers must have a clearance certificate otherwise 12.5% will be withheld. To find out more about clearance certificates visit the ATO website.
Concern 4: Record keeping
Records of rental income and expenses should be kept for five years from the date of tax return lodgements or five years after the disposal of an asset, whichever is longer. Adequate records should demonstrate how the expense was incurred for the rental property and the extent they relate to producing rental income.
When it comes to corporate and personal tax, this can be a dynamic and complex challenge depending on your circumstances. Tax legislation and regulations are forever changing, as are the many different methods of calculating tax liabilities. If you would like assistance with working out your rental properly income and deductions or would like to know more information, contact your usual Mazars advisor or alternatively one of our experts via the form below or on:
Brisbane – Tim Mouritz | Melbourne - Amanda Castricum | Sydney – Keti Stevanovski |
+61 7 3218 3900 | +61 3 9252 0800 | +61 2 9922 1166 |
Published: 18/08/2022
Source:https://ntaa.com.au/
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