Navigating the complexities of rental property taxation can be daunting, especially with the prevalence of common myths that can lead investors astray. In this article, we’ll debunk four of the most persistent myths surrounding rental property taxation and emphasise the importance of using a tax agent to ensure accurate returns and maximised deductions.
Myth #1: Principal Repayments on Loans are Deductible Expenses
Reality: While mortgage interest is deductible, principal repayments aren’t. It’s crucial for investors to understand the distinction between deductible expenses and non-deductible repayments to accurately calculate their taxable income.
Myth #2: Depreciation Reduces Tax Without Consequences
Reality: Depreciation can indeed lower current taxes by offsetting rental income, but it may have consequences upon the sale of the property. Depreciation reduces the property’s cost base, potentially leading to higher capital gains tax liabilities when the property is sold.
Myth #3: New Assets Over $300 Can be Immediately Claimed
Reality: Contrary to popular belief, new assets over $300 need to be depreciated over their useful life. Landlords should accurately record the purchase date, cost, and useful life of each asset to comply with tax regulations and avoid penalties.
Myth #4: You Can Estimate Expenses for Tax Purposes
Reality: Accurate record-keeping is paramount when claiming expenses for tax purposes. The Australian Taxation Office (ATO) may scrutinise deductions claimed without sufficient documentation, leading to potential penalties or audits. Investors should maintain detailed records of all expenses, including invoices, receipts, and rental income statements.
The Importance of Using a Tax Agent for Rental Property Tax Returns
Given the complexities and potential pitfalls associated with rental property taxation, it’s essential to seek expert advice from a qualified tax agent. Chequer Accounting specialises in rental property tax returns, offering expert guidance and peace of mind to landlords. Our team ensures accurate returns and maximised deductions while navigating complex tax rules and mitigating the risk of ATO scrutiny.
Save time and book online!