If you are a property investor, you might be prone to making a mistake while lodging for your tax return. Here are five common property investor pitfalls you should aim to avoid.
 " />
​Five Common Mistakes Property Investors Make Come Tax Time
21Sep

​Five Common Mistakes Property Investors Make Come Tax Time

If you are a property investor, you might be prone to making a mistake while lodging for your tax return. Here are five common property investor pitfalls you should aim to avoid.

1.    Not reporting all your rental income 

When lodging your tax return, you must include any income you receive from your rental property. You must also ensure that you include any bond payments you are entitled to keep and some insurance payouts.

2.    Failing to keep records 

You must also keep records of your expenses for five years after they are claimed in your tax return. Therefore, if you are audited and required to provide proof of expense; you won't lose the ability to claim the expense as a deduction. 

3.    Confusing improvements with repairs 

Ensure that you understand the difference between initial repairs, improvements and repairs. Here is a list of repair types:
  • Initial repairs: repairing an issue before any tenant can move in are not deductible as repairs for tax purposes. They are considered capital. 
  • Structural improvements: made after starting to rent, these repairs are not deductible as repairs and are treated as capital works. 
  • Ongoing repairs: classed as a repair for tax purposes and are immediately deductible. 
The ATO’s quick classification guide on repairs and maintenance

4.    Dividing income and expenses incorrectly on co-owned properties 

If you co-own your investment property, you need to divide the income and expenses according to your ownership share. This ownership share is based on your legal interest (tenants in common or joint ownership) in the property. It is not based on a verbal or written agreement that sets out a different proportion. 

5.    Costing yourself too much capital gains tax 

If you decide to turn your private residence into a rental property you should get a property valuation before you do so. This will ensure that if you make a profit when you sell only the capital gains on the property, based on the extent of any increase in value from which it became an investment property, will need to be paid. 
Return to all posts