Tips for Investors to Prepare for EOFY

With the end of financial year fast approaching, it’s important for your Landlords to think about maximising the most out of their investment property. Some strategies need to be put in place prior to 30 June. 5 areas that may assist your Landlords to get the most out of their investment whilst ensuring they comply with the ATO rules are below.

  1. Interest expense

The interest on borrowings is tax deductible provided that the investment property is available for rent that is, advertised on the market as a rental property.

The deduction is only available to the extent that the borrowed monies are used for income producing purposes. For e.g. if a loan was used partly to purchase an investment property and partly to purchase a car used privately, then an apportionment of interest is required.

You can prepay up to 12 months of interest on a loan and claim a deduction of the prepayment in the current financial year. This effectively brings forward a tax deduction from the following financial year into the current financial year.

  1. Depreciation

If the investment property was constructed less than 25 years ago, there would be some capital write-offs on the original construction costs available.

This is also the case if there have been substantial capital renovations on the property.

In addition, depreciation on items such as dishwashers, hot water units, ovens, cooktops and air-conditioning may also be available.

It may be worthwhile to contact a Qualified Quantity Surveyor to prepare a Depreciation Report. The cost of preparing the report is also tax deductible.

If the investment property is a newly constructed property, obtaining a Depreciation Report would be highly recommended.

  1. Repairs vs replacements vs capital improvements

This is an area which can cause the most amount of confusion for taxpayers and is an area that is targeted by the ATO.

A repair is tax deductible in full if the repair relates to fixing items back into its original condition. For e.g. fixing a few fence palings that have rotten.

A replacement is typically not deductible in full, but deductible over time in the form of depreciation or capital write-off. For e.g. replacing a broken down dishwasher with a new one.

A capital improvement is not deductible in full, but subject to a small capital write-off and also forms part of the cost base of the property. For e.g. removing a timber fence and installing a new Colorbond®fence.

  1. Holiday homes

These investment properties typically have some private usage involved. If the property is used privately and not available in the holiday let pool, the holding expenses such as interest, rates and water should be apportioned on number of days used privately and not available for rent.

It is prudent to keep a log or diary of the private usage and provide this to your accountant.

  1. Traveling costs

Traveling costs incurred to inspect an investment property are tax deductible to the extent that the purpose of the trip was solely to inspect the property. Where there are private components of a trip, these need to be apportioned appropriately.

Keeping good records and a travel diary would help substantiate any claims.


Written by Karl Karajkov


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