<?xml version="1.0" encoding="ISO-8859-1"?> <docID>327786</docID> <postdate>2024-08-28 09:41:40</postdate> <headline>Rental properties can be complex</headline> <body><p><img class="aligncenter wp-image-327795" src="https://citynews.com.au/wp-content/uploads/2024/08/investment-property.jpeg" alt="" width="900" height="600" /></p> <p><span class="kicker-line"><span style="font-weight: 400;">Chartered accountant </span><b>GAIL FREEMAN </b><span style="font-weight: 400;">shares the advice she gave a couple who had just bought a holiday rental property at the coast.</span></span></p> <p class="p1"><b>Sanjay and Aditi have just bought an investment property and had heard the Australian Taxation Office (ATO) was focusing on the rental sector this year.</b></p> <p><img class=" wp-image-203068" src="https://citynews.com.au/wp-content/uploads/2020/03/Gail-Freeman-Co-director-Gail-Freeman-e1682553347305.jpg" alt="" width="330" height="363" /></p> <caption>Gail Freeman of Gail Freeman & Co.</caption> <p class="p2"><span class="s1">They came to see me wanting to know what they needed to know. </span></p> <p class="p3"><span class="s1">“Sanjay, rentals can be quite complex and there are a few things that you need to know," I said.</span></p> <p class="p3"><span class="s1">"I recently read that the ATO had said nine out of 10 rental property returns lodged are incorrect. So as far as the ATO is concerned, this is a big problem.</span></p> <p class="p3"><span class="s1">“It is not uncommon when you buy a new investment property that you have to do repairs. </span></p> <p class="p3"><span class="s1">"But the first rule with repairs is that they have to arise during your period of ownership. If the property needs repainting when you bought it, the need must have arisen before you owned it. If it arose before you bought it, that is regarded as an initial repair and either comes off the capital gain when you sell or it can be depreciated over several years while you own the property. </span></p> <p class="p3"><span class="s1">"On the other hand, if you repaint the property in a couple of years’ time the need for the repaint arose as a direct result of it being rented out by you and you can claim the cost in full. </span></p> <p class="p3"><span class="s1">"Exterior painting can only be claimed every few years as it is less likely to be damaged by the tenants."</span></p> <p class="p3"><span class="s1">I told the couple that there were also issues around large items of capital expenditure that they might think were a repair but the ATO would consider to be an improvement. These have to be written off over 40 years.</span></p> <p class="p3"><span class="s1">Aditi said their investment property was at the coast and they spent a few nights there this year. She wanted to know if that had any impact on the calculations?</span></p> <p class="p3"><span class="s1">I said: “Yes, Aditi, you will need to keep a record of your private use every year and that will enable us to apportion the deductions. </span></p> <p class="p3"><span class="s1">"It is important to note that the property needs to be available for rent and the ATO has provided details of when they regard a property as being available for rent. </span></p> <p class="p3"><span class="s1">"The best idea is to have it listed with an agent all year round. If it is only available to friends and family and not advertised anywhere, the ATO regards this as not being available for rent all year and the apportionment is quite different. </span></p> <p class="p3"><span class="s1">"Also the income and deductions have to be claimed in the ratio in which the property is owned, not in a way that provides a larger tax benefit for one or other of you.â€</span></p> <p class="p3"><span class="s1">The other area that caused a lot of difficulty was interest claims, I told them.</span></p> <p class="p3"><span class="s1">"In simple terms it is the purpose of borrowing that determines the deductibility of interest," I said. </span></p> <p class="p3"><span class="s1">"So if you draw down on your mortgage to buy a car, for example, that component of the interest is not deductible. A loan apportionment is required to be prepared. </span></p> <p class="p3"><span class="s1">"It is not the security you give for a loan that allows you to claim the interest, it is the use to which the funds are put. So be careful if you renegotiate the loan, draw down or even make additional repayments.</span></p> <p class="p3"><span class="s1">"You would be wise to seek advice before you actually make any changes to the loan. Also using an offset account for an investment property may not be as helpful as it is when used for your home mortgage.â€</span></p> <p class="p3"><span class="s1">Sanjay said: "That's a lot to absorb, Gail. I'm sure we'll have further questions for you in the future.â€</span></p> <p class="p4"><span class="s1"><i>If you need advice on rental property claims or any other tax matter, please contact the expert team at Gail Freeman & Co Pty Ltd on 02 6295 2844, email <a href="mailto:info@gailfreeman.com.au">info@gailfreeman.com.au</a> or visit <a href="http://gailfreeman.com.au">gailfreeman.com.au</a></i></span></p> <h6 class="p5"><b>Disclaimer<br /> </b><span class="s1">This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser. Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.</span></h6> </body>