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Property investor? See below common mistakes and questions we get asked.

What are the things you need to look out for due to general misconception as well as rules changes?

  1. Travel to inspect your property is not deductible.

From 2018 financial year, any travel to inspect your investment property or to go in and fix things up is not deductible.

  1. No deduction for your own labour.

Quite often we get asked question, whether the client can claim deduction for their own labour to conduct repairs in their investment property.

The simple answer is NO. You need an invoice to support any claim and you wouldn’t be issuing an invoice to yourself, you’d just have to declare this as income in your return anyway.

The answer differs if you run a tradie business, in which case your business does issue an invoice to you for the work done and the business does include this in their taxable income.

  1. Initial repairs

When you buy a property and it needs repairs done before being rented out, you can no claim these as a deduction. Instead, these are written off over the next 40 years, with any unclaimed amounts reducing your capital gain when the property is sold.

It doesn’t matter whether you were aware of the repairs being required at the time of the purchase or not (so you better get the building inspection done).

The repairs are only deductible if done in the year when property was earning income and they did not need doing when you bought it.

As always, you shouldn’t be doing things for tax benefits only. If the repairs enable you to get higher rent or increase the value of the property, you should by all means go ahead. Just don’t rely on your tax refund to cover the costs.

  1. Borrowings

It is important to note, that it is the purpose of borrowing, not what you use as a collateral (security) that determines deductibility of the mortgage interest.

Make sure to talk to your accountant before any refinancing, especially if you own more than one property. Also make sure to have the loans in the correct names.

If you have repaid the mortgage for the property you lived in, are ready to rent it out and borrow for a better house for yourself, you will not be able to claim a deduction for the interest on the new loan. The ATO does not care that you are now renting the property out, the fact is you have repaid that loan and you are borrowing for your new place of residence.

You are best to take advantage of offset accounts where possible until you know what your plans are. That way you reduce the interest you pay but the loans can still retain their character until you are certain where you’re headed.

  1. Depreciation

You are no longer allowed to claim depreciation on second hand assets, if you purchased the property after 9th May 2017 (or it wasn’t used for income producing purpose before 1st July 2017).

It may still be worth getting the depreciation schedule done and get the benefit of capital works (special building write offs), but this depends on the age of the property or substantial renovations done and you are best to check with the quantity surveyor first.

You can keep claiming depreciation for the assets that were used in the property prior to these dates according to the old rules.

  1. Holding costs

From 1 July 2019, you cannot claim a deduction for expenses during renovation if the property is not listed as immediately available for rent.

These costs don’t get completely lost, they get added to the cost base and reduce the capital gain when you sell the property.

If you have any property questions, don’t hesitate to contact one of our boring accountants!


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