6. KNOW THE DIFFERENCE BETWEEN A REPAIR AND AN IMPROVEMENT
It is important for property investors to know the difference between a repair and an improvement so that you maximise your claim legally. A repair is generally defined as 'restoring something to the condition it was in when it was purchased' and usually involves fixing part of an asset. Getting one of your broken hotplates on your stove fixed is a repair. So is fixing a leaking tap and replacing the element in a hot water heater. Repairs can be claimed as an immediate deduction.
An improvement is when you improve the condition of the asset and these need to be depreciated over the ATO's appropriate effective life. So buying a brand new stove to replace the 'tired & old' stove is an improvement. In most cases, so is replacing the entire roof or painting the entire property. Be sensible!

7. MIXING INVESTMENT AND PERSONAL AFFAIRS
Make sure that you are not claiming a deduction for any interest on your personal loans. Line of Credit (LOC) loans can be tricky. If you have drawn down funds for your investment property and for personal expenditure, you need to separate them.

Also, if you have used any investment loans to spend on personal expenses like buying a car, renovations on house that you live in or a holiday, you cannot claim the interest that you pay on those amounts as a deduction. They are personal expenses and the interest will also need to be.

One of the most common and easily identifiable errors in mixing investment and personal expenses is with visiting your investment property…..

8. JUSTIFIABLE TRAVEL & ACCOMMODATION EXPENSES
You are entitled to claim for travel, vehicle and accommodation expenses which relate directly to the management of your investment property. Any proportion of a trip to your investment property that was also for a holiday is not claimable. So if you inspect your property for 1 day but stay for 7, you would only be able to claim 1/7^th of the expenses.

It is important to keep a good record of all these details and only claim what are genuine expenses. Log books and odometer readings for your vehicle, airfares and receipts could be required for justification.

9. KEEP GOOD RECORDS
If you are one of the thousands of property investors that will get a letter from the ATO this year, make sure you have good records to substantiate your tax return. Apart from keeping all your agent statements, bank statements, council fees and utility bills, it could also be wise to keep other documentation as it could save you later.

If you are self valuing your investment property for the purposes of transferring the asset to someone else, appropriate documentation includes a real estate agent's letter with examples of recent sales of other similar properties in the area or historical sales records.

If you incur costs associated with managing your investment property like phone calls and stationery, make sure you keep the receipts. If you drive your car to manage your investment property, keep a log book of kilometers traveled.

If you rented your property out for only part of the year, keep records to prove when the property became available for rent.

Remember, you can only claim expenses if you actually incur them. So if you engage a plumber to do a job for you cheaply because you pay him cash, you need to get a receipt and claim only the amount you paid – you cannot claim for the market value of the work done.

10. PROTECT YOURSELF
It's important you protect yourself and your investment. The best way to do this is to ensure you are adequately insured. The cost of Building/Contents insurance and Landlord insurance is tax deductible and can be very useful in the case of tenants causing damage or 'doing a runner'!

If you are an employee and have a salary, you may also have income protection insurance, which is a deductible cost and can be important if you could not work for some reason and still needed to pay your investment property mortgage.

Investors should be aware of the use of trusts for asset protection and the potential for significant tax savings.  Be aware that not many accountants or lawyers are familiar with these structures so it is important to find an accountant with experience in this area, particularly given the ATO is on the look out for some types of trusts.

Taking the time to learn what claims you are entitled to make at tax time, especially as a property investor, means you will maximise your savings, claim correctly without mistakes and therefore stay under the radar of the ATO. 

Disclaimer: These Tax Tips are for general information only. They should not be considered taxation advice and investors should see their Accountant for an individual tax assessment.

11. Depreciator's NO RISK GUARANTEE?
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To get 10% off your next depreciation schedule CLICK HERE and send Depreciator your details so we can contact you…
Be prepared for tax time with Depreciator!

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