For rental property owners in Perth, it is more crucial than ever to ensure that your tax claims are accurate and fully compliant. With the Australian Taxation Office (ATO) tightening its focus on rental property deductions, audits have revealed a staggering 90% of returns contain errors. This is a significant concern for landlords, as missteps in your tax filings can lead to penalties. As a business owner or investor, understanding the nuances of rental property tax deductions and seeking expert business advisory services from a trusted accountant can save you from costly mistakes. Here’s a breakdown of key areas to watch out for.
1. Interest Deductions – Ensuring Proper Allocation
One of the most frequent errors made by property investors involves incorrect claims for interest on loans. If you have refinanced your investment property loan, be mindful of how you use the borrowed funds. Any personal use of the loan—whether for purchasing a car or taking a vacation—cannot be included in your interest deduction.
To stay compliant with ATO regulations:
Keep a clear record of the purpose for which loan funds are utilised.
Only claim interest for the portion of the loan used for the rental property.
Consider separating loans for personal and investment use to prevent confusion.
2. Repairs vs. Capital Improvements – Know the Distinction
Understanding the difference between repairs and capital improvements is essential for ensuring you claim the correct deductions. Here’s how the ATO distinguishes between them:
Repairs: These are expenses incurred to fix damage or wear and tear, such as replacing a broken window. These can be deducted immediately.
Capital improvements: These are enhancements that increase the property’s value, like installing a new kitchen or extending the property. These costs need to be depreciated over time.
To avoid issues with your accountant or the ATO:
Retain all invoices and detailed descriptions of any work done.
If you replace an item, document whether it’s a like-for-like repair or an upgrade.
3. Availability for Rent – Proving the Property’s Intent
For investors who rent out properties intermittently—such as a holiday home or a property rented only during certain times of the year—it’s important to show that the property is genuinely available for rent. If the ATO believes the property is primarily used for personal purposes, they may disallow deductions related to the property.
Best practices to demonstrate your property is available for rent include:
Advertising the property publicly (not just to friends or family).
Setting a reasonable and competitive rental price.
Avoiding excessive restrictions on tenants, such as unreasonable lease conditions.
If you limit availability during peak seasons or place overly restrictive rules (like "no pets, no children, or minimum 14-day stays"), the ATO may view this as more of a personal asset than an investment.
4. Travel Expenses – Understanding Recent Changes
As of 2017, landlords are no longer permitted to claim travel expenses related to inspecting or maintaining rental properties—unless they are operating a rental business. If you are managing several properties at a large scale, you may be classified as running a rental business and should consult your accountant to verify whether your activities qualify.
Key Takeaways for Perth Investors
Ensure that your interest deductions are calculated correctly and separated between personal and investment use.
Be mindful of the difference between repairs and capital improvements to avoid costly errors.
Prove that your rental property is genuinely available for lease to safeguard your tax claims.
Remember, travel expenses are no longer deductible unless you’re managing a rental business.
For property investors in Perth, working closely with a skilled and knowledgeable accountant like Symmetry Accounting & Tax can be invaluable. An experienced business advisory professional can help guide you through complex tax issues and ensure that your tax claims align with current ATO regulations. With the ATO increasing its audit activities, proactive planning and accurate record-keeping are critical to avoiding penalties and ensuring the success of your rental investment strategy.
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