INVESTORS own around two million homes in Australia and every year thousands of them claim deductions they’re not entitled to, falling foul of the Australian Taxation Office.
The result can be a kind warning or a significant fine and large interest bill.
The tax office says investors’ should be responsible in getting their tax returns right and they can’t blame their accountant or plead ignorance if they get it wrong.
One of the most common mistakes investors make is claiming items that should be depreciated over several years.
According to the ATO, initial repairs to fix damage, defects or deterioration that existed when a property was bought are capital expenses that should be claimed as capital-works deductions over either 25 or 40 years.
Capital improvements like re-modelling a bathroom or adding a pergola should also be claimed as capital-works deductions.
Other mistakes include:
Interest
Taxpayers at times use loans for investing and private purposes — for example, to buy or renovate a rental property or to buy a motor boat.
The interest expense on the private portion of the loan (the boat) is not deductible!
Legal expenses
Conveyancing expenses incurred when buying and selling a property aren’t deductible. These form part of the cost for capital-gains tax purposes.
Travel expenses
If you take a holiday and visit your investment property while you’re there, you cannot claim a deduction for the full trip.
The tax office says you may claim only those expenses directly related to the property inspection and a proportion of accommodation expenses.