ATO Landlord Tips You May Not Know<< Back to Blog
We do appreciate that the focus of every landlord is to optimise their tax returns and maximise their income. However, be aware of when you can claim repairs and work on the property as a legitimate tax deduction.
CAN YOU CLAIM THE COST OF REPAIRS BEFORE YOU RENT THE PROPERTY OUT?
You cannot claim the cost of repairing defects, damage or deterioration that existed when you obtained the property, even if you carried out these repairs to make the property suitable for renting. This is because these expenses relate to the period before the property became an income-producing property.
Example: Mr House needed to do some repairs to a rental property he recently purchased before the first tenants moved in. He paid tradespeople to repaint dirty walls, replace broken light fittings and repair doors on two bedrooms. He also had to have the house treated for damage by white ants.
Because Stephen incurred these expenses to make the property suitable for rental, not while he was using the property to generate rental income, the expenses are capital expenses. This means he cannot claim a deduction for them.
WHAT RECORDS DO YOU NEED TO KEEP?
You need to keep proper records in order to make a claim, even if you use a tax agent to prepare your tax return or you do it yourself. You must keep records of the rental income you receive and the deductible expenses you pay.
You must keep these records for five years from the date your tax return is lodged.
Did you also know that you must keep your ownership of the property and all the costs of purchasing/acquiring it and selling/disposing of it records for five years as well – from the date you sell/dispose of your rental property?
As capital gains tax may apply if you sell your rental property, we recommend you keep records of every transaction over the period of ownership of the property. This would include contracts of purchase and sale, and conveyance and loan documentation.
Keeping these records will help you work out your capital gain or loss correctly and ensure you do not pay more tax than you need to.