Making Your Investment Property Tax Effective Post COVID-19
The ATO FAQ’s were last updated on the ATO website 3 April 2020 and subject to change at any time
Has your residential property investment been impacted by COVID-19? Have you had to reduce your rent, offer your tenants deferred payment plans or have the travel restrictions impacted your short-term rental property? With the end of the financial year upon us, how has this impacted what you can and cannot claim?
Here is a look at some COVID-19 specific information published by the Australian Taxation Office (ATO) on 3 April 2020. These FAQ’s provide an overview of the standard items and other concessions you may be able to claim through your tax return.
Ensuring you’re claiming all relevant tax deductions is an important step to setting yourself up for investment success.
Q: My tenants are not paying their full rent or have temporarily stopped paying rent because their income has been adversely affected by COVID-19. Can I still claim deductions on my rental property expenses?
A: Yes, if your tenants are not meeting their payment obligations under the lease agreement due to COVID-019 and you continue to incur normal expenses on your property, then you will still be able to claim these expenses in your tax return.
Q; I’m considering reducing the rent for tenants whose income has been adversely impacted by COVID-19 to enable them to stay in the property. The tenants are not in default of their rent. Will my deduction for rental expenses be reduced because of this?
A: No, if you reduce the rent payable to enable your tenants to remain in the property (thereby maximising your rental return in a changed rental market), your deduction for rental property expenses will not be reduced.
Q: If I receive a back payment of rent, or insurance for lost rent is this amount assessable income?
A: Yes, these amounts should be declared as income in the tax year in which you received the amounts. Keep in mind depending on the agreement you made with your tenant about paying the rent back, this may take a number of years and will need to be declared over multiple tax returns.
Q: If the bank defers loan repayments for a period of time as a result of COVID-19, can I continue to claim interest on the loan as a deduction?
A: Yes, if interest continues to accumulate on your loan, it will be an expense that you have incurred and is therefore deductible. Interest remains deductible on the loan even if the bank defers the repayments.
Q: Can I access the new instant write off for my property?
No, if you are an investor, you cannot access the instant asset write-off deduction.
What are the normal tax concessions I can claim through my tax return?
You can claim stamp duty, mortgage registration and transfer charges, building inspections and conveyancer and solicitor fees, but ONLY for the tax year you purchased the property in.
Home loan costs
The interest payable on your home loan is fully tax deductible as are any accompanying bank charges, home loan fees and lenders mortgage insurance costs.
Your lender can provide you with a summary of these expenses so you can give them to your accountant
Repairs and maintenance
You can deduct the costs of any maintenance carried out on your property during that tax year in order to restore the property to its original condition, such as fixing plumbing or roof tiles, broken windows, gardening, pest control etc.
Keep in mind that you cannot claim “improvements” to the property such as an extension to the kitchen or a new granny flat.
Property management fees
In most cases 100% of property management fees can be claimed as an expense along with all costs to promote and advertise your property for rent.
Other costs you can claim:
- Home, contents and landlord insurance
- Land tax and council rates
- Accounting and legal costs
- Depreciation on new assets such as whitegoods and air conditioners
What you can’t claim:
- Any expenses related to your personal use of the rental property
- Utility bills paid by the tenant
- Borrowing costs where you have borrowed against the equity in the investment property for private use
- Costs relating the purchase or sale of the investment property
- Depreciation on second-hand assets purchased after 1 July 2017. This impacts people who buy a previously used property, items such as hot water system, dishwasher or stove are no longer depreciable. They are included in the cost base for calculating any capital gain when the property is sold
- From 1 July 2019, expenses to hold vacant land are no longer deductible for most people. Make sure you talk to your accountant about your individual situation
A final word
Every investors situation is different, and it is very important that you talk to your accountant about your specific property and what you can and cannot claim. The ATO may update what can and cannot be claimed from time to time so it is important that you, as an investor, are aware these changes and any updates. To find out more click here
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