What Inner City And Inner West Property Owners Need To Know This EOFY

June 24th, 2022 - by Brad Gillespie

Property owners take note – this tax season, the ATO is focusing on rental income declarations and deductions and real estate-related capital gains and losses.

If you’ve recently sold or are a current or prospective property investor, here’s what you need to know.

What is the ATO looking out for?

Each year the ATO identifies priority areas for extra scrutiny, and this year rental income declarations and deductions are one of them.

The Office is advising landlords to make sure they declare all income generated by their investment properties, including any funds made through short-term leasing arrangements, bond money retained and insurance payouts.

ATO assistant commissioner Tim Loh says any deductions claimed must meet the ‘three golden rules’:

  • You must have spent the money yourself and not have been reimbursed.
  • For any expenses related to a mix of income-producing and private use, you must only claim the percentage related to generating income.
  • You must have a record to prove it.

The ATO is reminding landlords to keep thorough and accurate records, noting that it frequently finds mistakes in declarations relating to investment properties. Remember that the ATO can ask for supporting documentation, such as a receipt, for any claim you make, even after you have received your notice of assessment.

What if you’ve sold a property this year?

The ATO is also focusing on property-related capital gain and loss declarations this tax time, noting that it is an area that seems to confuse taxpayers.

While the sale of your home is generally exempt from capital gains tax (CGT), the sale of an investment property or second home usually triggers it. If you sell an asset like a rental property at a profit, you make a capital gain. CGT is the tax payable on that profit. If you sell an investment property or second home for less than it cost you to buy and improve it, you make a capital loss.

Mr Loh has reminded property owners that they must calculate any capital gain or loss made from the sale of second homes or investment properties this financial year. Capital gains or losses are added (or deducted) from your income, and how much CGT you pay depends on which income bracket you are in. Holding your investment property for more than a year before selling it may reduce the amount of CGT payable by half. Capital losses can be deducted from capital gains made in future financial years.

Always seek professional advice from a registered tax agent or accountant for your specific circumstances.

Property investors: it’s time to take stock

With the ATO zoning in on accurate record-keeping this year, it’s a good chance for property investors to take stock of their property management setup. Is your investment property being run as smoothly and efficiently as possible? Now’s the time to:

  • Review your expenses. Are you maximising your tax deductions by claiming for all the expenses you’re entitled to? Whether your property is positively or negatively geared, a good accountant who understands property investment can provide advice about what you can and can’t claim for, including depreciation via a tax depreciation schedule. Landlords may be able to claim tax deductions for everything from strata fees and council rates to pest control and insurance. And don’t forget repairs and maintenance – not only can they increase your property’s value and marketability, but more often than not they’re tax-deductible, too.
  • Get a current sales appraisal. A property appraisal will give you a good understanding of what your property is worth in the current market. Given the market fluctuations Sydney has experienced, your property’s value has almost certainly changed over the last 18 months. Understanding the value of one of your most important assets can help you make better decisions about your current and future financial wellbeing.
  • And a current rental appraisal. The sales market isn’t the only market to have undergone a huge amount of movement in recent years. Sydney is a landlord’s market at the moment, with April’s vacancy rates of 1.4%, the lowest since Domain’s records began and house rents up 9.1% and units 6.4% year-on-year at the end of March. Without a current rental appraisal, you could be missing out on rental income.
  • Review your relationship with your leasing agent. Is your current property manager reliable? Do they maintain clear and open lines of communication with you and your tenant? Do you feel fully informed about what is happening with your investment property? Do you feel confident in their problem-solving ability to manage tricky situations when they inevitably arise? If not, it might be time to consider switching to a new leasing agent.

What do vendors need to know about this EOFY?

If you’re selling your inner west or inner-city property this tax time, it helps to know your prospective buyers. And they’re increasingly likely to be property investors. According to the Australian Bureau of Statistics, the number of investors active in the Australian property market increased by 2.9% in March. This marks a return to the historical benchmark after several years of below-average investor activity. Given the current state of the Sydney rental market, with historically low vacancy rates and record-high weekly rents, it’s no surprise that investors are on the hunt for rental properties to buy. Our areas are particularly piquing investors’ interest, as the return of workers to offices coupled with the resumption of international migration has sparked demand for centrally located rental homes.

If you’re thinking of selling your inner city or inner west home, or you’re after more EOFY property advice, get in touch with our team today.