If you own an investment property you must know what are the top 3 mistakes most of the rental property owners make in their tax returns and miss on the possible benefits or enter into troubles!

Not knowing all the deductions that can be claimed or how can be claimed

The number one mistake most of the taxpayers with rental income make is, they don't invest time in knowing all the possible deductions. Most of the taxpayers with investment properties claim fewer common expenses.

In our experience, the quantum of deductions can easily be increased with a little bit of study. On the other side, some taxpayers claim expenses which are unlawful or not allowed and thus enter into serious troubles of tax audits by ATO.

Depreciation

We have noticed many taxpayers don't claim depreciation on their rental properties because they opt to save few hundred dollars by not getting the depreciation schedule prepared by professionals. Depreciation generally is the second biggest expense for rental properties after interest. It is beneficial to get a depreciation schedule prepared by professionals and claim both, depreciation and schedule preparation cost in the tax return.

Interest

This is one area that we see mistakes by the taxpayers. As per tax laws interest relating to the rental property is claimable, any other interest must be excluded. If you have a loan mixed with rental property and residential or other types of investments, it must be accurately worked out.

Traveling

Traveling expenses for managing residential properties are not claimable unless you are an excluded entity. This change came into effect on 1 July 2017. All traveling expenses relating to commercial rental properties are claimable if you have relevant supports.

Capital work

This is another area where most of the taxpayers with rental properties get confused. Capital work is generally claimed over the life of the improvement, unless otherwise provided specifically by tax laws. To increase the negative gearing, taxpayers ignore the useful life of the improvement and claim in the year of expense, that is not correct.

Depreciation on second-hand plant and equipment

Depreciation on used / second-hand plant and equipment is not available after 9 May 2017. If you bought a second-hand property after this date, you can claim depreciation only on the building, not only the plant and equipment items. Similarly if you buy a second-hand plant and equipment for your property, you can not claim depreciation on it.

Professional fees

If you paid professional fees in relation with your rental properties, you can claim these fees in your tax returns if directly related with the rental properties.

Not keeping all the records

We have seen that many deductions are left on the table because taxpayers don't have receipts or other documents to support the claims. This can easily be fixed.

Records can easily be created

If you don't have the receipts readily available, receipts can be re-generated or re-sourced by going into the origins of expenses. By going into the bank or credit card statements expenses can easily be traced back. The importance of supporting records can not be ignored because in the instances of queries from the ATO, your inability to produce relevant and acceptable documents may prove to be very costly.

Not taking expert advice

For various reasons many taxpayers don't take professional advice in their tax matters. Reasons may include perception towards cost, reliance on the freely available information or not expecting further results.

Expert advice is not costly

Most of the taxpayers think going to the tax experts is a costly affair. In reality, it is just the opposite. By taking assistance of tax specialists in your tax matters you don't increase the costs rather increase the benefits that could easily be lost otherwise.

Unexpected benefits of professional advice

Tax professionals also take care of other matters which normally taxpayers are not aware of or are prone to making mistakes. These mistakes sometimes can be big, both in terms of money and time. Any fee that you pay to tax agents is generally returned by increase in the tax refund or reduction in the tax liabilities. The surety that there are no risks or mistakes left in the tax compliance process gives a total peace of mind.

Tax Laws may be different that your common sense

Many taxpayers read on the internet and prepare their returns accordingly without knowing the intricacies of the tax laws. Reading on the internet and doing the things yourself seem to be an intelligent act but one thing that most of the taxpayers forget is, tax laws and common sense may not be the same. Laws have specific purposes at the macro level. You may not notice it but your common sense may be biased.

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Disclaimer

This article is a general guide and does not represent a specific tax situation or provision. Also, this is not our professional advice on specific circumstances. Please call us at 13-000-RBIZZ or write to us at team@rbizz.com.au for our professional assistance.

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