Property Investors Urged to Steer Clear of Tax Pitfalls
As tax season approaches, property investors in Australia are being warned to avoid common mistakes that could lead to audits or missed deductions. The Australian Taxation Office (ATO) has flagged several areas of concern, including overclaiming expenses and incorrect apportionment of loan interest.
According to Mark Chapman, Director of Tax Communications at H&R Block, many investors trip up on basic errors. “One of the biggest mistakes is not keeping proper records,” he said. “Without receipts or logs, you can’t substantiate your claims.”
Common Errors and How to Avoid Them
Key errors include claiming capital works deductions on properties not yet income-producing, and incorrectly claiming travel expenses. Since 2017, travel costs related to inspecting a rental property are no longer deductible for investors not in the business of renting property.
Another frequent mistake is failing to apportion loan interest correctly when a loan is used for both private and investment purposes. The ATO requires a reasonable basis for apportionment, such as the proportion of the loan used for the investment.
Impact of Incorrect Claims
Incorrect claims can result in penalties and interest charges. The ATO uses data matching to identify discrepancies, and investors with large or unusual claims are more likely to be audited. Chapman advises investors to seek professional advice if unsure.
“Getting it wrong can cost you more in the long run,” he said. “It’s worth spending a bit on a tax agent to ensure everything is correct.”
Maximizing Deductions Legally
Investors should ensure they claim all eligible deductions, including borrowing expenses, property management fees, and repairs and maintenance. However, improvements that increase the property’s value must be claimed as capital works over time.
Depreciation is another area where investors often miss out. Engaging a quantity surveyor to prepare a depreciation schedule can yield significant tax benefits.
