Be prepared to walk that line

With more than 100,000 property investors receiving letters from the Australian Tax Office for possible incorrect property deductions this year, it’s crucial you have a plan for effectively managing your tax situation.

Although it may seem tempting to exaggerate a claim, it isn’t worth the risk. Heavy penalties apply to those caught claiming excessive deductions or failing to declare rent.

Astute property investors can adopt a range of strategies to legitimately minimise tax liabilities, while maximising their tax breaks. And the first step should be to arm yourself with trusted experts.

While it may cost upfront, paying for expert advice and services, will pay dividends for years to come. Because, getting your system right – for effectively managing your tax situation –can help clarify and manage the following areas, which can often trip investors:

Be aware of what you can claim. Sounds simple, but, are you sure you’ve got it all covered.

Research your tax obligations and claimable expenses. Remember too, that expenses are only claimable when the property has been available for rent. When performing repairs or maintenance, anything completed prior to the property being available for rent will not be tax deductible.

Is it a repair or an improvement? Not all work performed on your property is deductible. If the work involves fixing damage caused by wear and tear, it is likely to be a repair and therefore tax deductible. But when you are replacing old materials with new and enhancing your property, the work is more likely to be considered an improvement and will instead be added to the cost of your property, representing a depreciable asset.

So, if you’re ever in doubt when it comes to walking that fine line of optimising your tax position, seek professional advice early, or even contact the ATO directly for a ruling.