A Tax Preparation Checklist for Australian Property Owners

For Australian property investors, tax time is a crucial opportunity to maximise legitimate deductions and avoid costly mistakes. The Australian Taxation Office (ATO) closely scrutinises rental properties, making accurate record-keeping and a clear understanding of what you can and cannot claim essential.

This article provides a concise checklist for Australian property investors, including key expenses and common pitfalls to avoid.

Tax Return Preparation Checklist

Gather all relevant documentation before lodging your tax return. Being organised is key to a smooth process.

I. Income Records

• Rental Statements: Annual summaries from your property manager.
• Direct Rental Income: Detailed records (e.g., bank statements, rent books) if you self-manage.
• Other Rental-Related Income: This includes retained rental bond amounts (e.g., for tenant default or damage), insurance payouts for damage or loss of rent, letting or booking fees received, and tenant payments for repairs you previously funded.

II. Expense Records

• Financial Records: Bank statements showing interest charged on your investment loan, and original loan documents and refinancing statements.
• Property Management: Statements and invoices from your real estate agent.
• General Property Upkeep: Invoices and receipts for repairs, maintenance, cleaning, gardening, and pest control.
• Rates & Fees: Council rates notices, water rates notices, land tax assessments, and Body Corporate/Strata fees statements.
• Insurance: Policies and premium statements for landlord, building, contents, and public liability insurance.
• Professional Services: Legal expense invoices (related to debt collection or tenant issues) and quantity surveyor reports (for depreciation schedules).
• Purchase/Sale Documents (if applicable): Contract of purchase/sale, settlement statements, conveyancing documents, and agent fees (for sale).
• Renovation Records: Invoices, receipts, and “before and after” photos for improvements.
• Travel Records (if eligible): Travel diary (if away for 6 nights or more) and receipts for flights, accommodation, fuel directly related to the property.

III. Capital Gains Tax (CGT) Records (if property sold)

• Original purchase documents, capital improvement records, sale contract, settlement statement, and conveyancing/agent fees for the sale.
• Investment Property Expenses Checklist
• This checklist details common expenses that Australian property investors may be able to claim as deductions, provided they were incurred in earning rental income.

A. Immediately Deductible Expenses (Claimable in the year incurred)

• Advertising for tenants.
• Bank charges and fees (directly related to the property’s accounts).
• Body Corporate Fees/Strata Levies (regular administrative contributions).
• Cleaning, gardening, lawn mowing, and pest control.
• Council rates, water charges, and land tax.
• Insurance premiums (landlord, building, contents, public liability, loss of rent).
• Interest on Loans (only the investment portion).
• Legal expenses (for debt collection, tenant issues).
• Letting fees and commissions, property agent fees.
• Repairs and Maintenance: Work done to maintain the property’s original condition (e.g., fixing a leaky tap, repairing a broken window, painting a worn wall). Does not include initial repairs or improvements.
• Minor costs: Stationery, postage, telephone, internet (proportionally related to managing the property).
• Professional Fees: Tax depreciation schedule fees.
• Safety & Compliance: Smoke alarm maintenance, pool safety costs.

B. Expenses Deductible Over Several Years

• Borrowing Expenses (over $100): If total borrowing expenses (e.g., loan establishment fees, Lenders Mortgage Insurance) exceed $100, they are deductible over five years or the term of the loan, whichever is shorter.
• Depreciation on Plant and Equipment (Division 40): For assets like carpets, blinds, ovens, air conditioners, hot water systems. Claimed over their effective life. (Note: For properties acquired after 9 May 2017, deductions are generally limited to assets you actually purchase and install).
• Capital Works Deductions (Division 43): For building construction costs, extensions, alterations, structural improvements (e.g., fencing, retaining walls, paving), and major renovations. Generally claimed at 2.5% per year over 40 years. Includes special levies from a body corporate for capital improvements.

8 Common Mistakes & Issues with the ATO

The ATO actively scrutinises rental property deductions. Avoid these frequent errors to prevent issues:

1. Misclassifying Repairs vs. Capital Works: Distinguish between immediate repairs (restoring original condition) and capital improvements (enhancing or fixing pre-existing defects, depreciated over time). Initial repairs from purchase are generally capital. ATO Focus: Large “repair” claims, especially in the first year of ownership.
2. Over-claiming Loan Interest: Ensure interest claimed relates only to the income-producing portion of the loan, especially if redraws were used for private purposes.
3. Poor Record-Keeping: Maintain all income and expense documentation (receipts, invoices, statements) for at least five years. Lack of evidence leads to disallowed deductions and penalties.
4. Deducting for Non-Rental Periods: Don’t claim expenses for periods the property was used privately or not genuinely available for rent. Deductions are limited if rented below market rate.
5. Incorrect Borrowing Expense Claims: Apportion borrowing expenses (e.g., LMI) over five years, not all in the first year.
6. Claiming Non-Deductible Capital Costs: Purchase/sale costs like stamp duty (on property title) or conveyancing fees are generally part of the property’s cost base for CGT, not immediate deductions.
7. Overlooking Capital Gains Tax (CGT): Always declare gains or losses when selling an investment property. The ATO has sophisticated data-matching capabilities.
8. Double Dipping on Expenses: Only claim expenses you incurred directly. Avoid claiming expenses already paid and accounted for by your property manager.

Be Diligent and Seek Professional Advice

Taxation for property investors is complex. Maintain meticulous records, understand deduction types, and apportion expenses correctly. If unsure, consult a registered tax agent or accountant specialising in property investment to ensure compliance and maximise legitimate claims.

To discuss tax preparation for your investment property, contact the PPT team on (03) 5331 3711 or submit and enquiry.