Own a Residential Investment Property?
Want to know how the 2017-18 Budget affects your future tax position?
Here’s the rub…
The ATO is interested
ATO audits of over 300 rental property claims found errors in 90% of returns. This means a huge potential loss of revenue for the ATO and fertile ground for tax reviews.
This year, the Australian Taxation Office (ATO) will undertake 4,500 audits of taxpayers it considers are “high risk” because they overclaim or don’t declare income relating to rental properties. Errors range from travel claims against residential rentals where the travel is largely unrelated to the property, private use of a holiday home or holiday home rental income not being declared, interest expenses being claimed where money was redrawn against a loan for private purposes, inappropriate depreciation claims and claiming capitalworks as repairs and maintenance.
What are the changes?
With some exceptions from 1 July 2017:
- Travel expenses related to inspecting, maintaining or collection of rent for a residential rental property are no longer tax deductible. Additionally, from a CGT point of view, those non-deductible travel expenses cannot be included in an asset’s cost base either.
- For residential property investments purchased on or after 10 May 2017, depreciation of “previously used” or “second hand” assets is no longer claimable as Income Tax deductions Depreciation only applies to the costs of NEW assets and can only be reflected in the property’s cost base for capital gains tax (CGT) purposes NOT in your Income Tax.
If your residential property investment was owned prior to 7.30pm on 9 May 2017, you remain eligible for depreciation of existing and newly purchased plant and equipment UNTIL you no longer own the asset or the asset reaches the end of its effective life.
What does it mean for you?
If you are a client of Porters CA, and we have you registered for tax purposes as an owner of a residential rental property, we’ll take care of the fine print and make sure your income tax return is in line with the new tax laws. However we rely on the information you provide us, so accurate record keeping and full disclosure is essential.
For owners of Residential Property Investments, probably the most notable change is that you can no longer claim travel expenses against visits to your asset.
Get in touch with our office on (08) 6436 0900 if you’d like to know more about how these changes might impact you or if you have any other queries.
Please note: The information presented in this column is general in nature. If you are intending to apply it to your personal situation, you should seek professional advice to validate your interpretation is correctly applied to your financial affairs.
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