Your must have 2020 update from the ATO for Property Investors

It’s been a year of confusion and disruption for property investors. We had the bushfires, and then that virus. We found a great summary from the ATO that has some great tips. Did you know that if you have deferred your loan payments, you can still claim the interest as a deduction this year? You can find the article originally published on the ABC News website by Nassim Khadem here:

Rental property owners that have had their mortgage repayments deferred due to COVID-19 can still claim the interest on their tax bills, the Australian Taxation Office (ATO) says.

Key Points

  • The ATO is reminding Australians to claim interest and expenses only on properties that are genuinely for rent
  • It says insurance payouts for lost income due to coronavirus or bushfires are taxable
  • Deductions for vacant land are generally no longer available

But those that have been awarded insurance payouts for loss of rental income due to COVID-19, bushfires or floods will still be taxed on it.

The agency is also reminding people this tax time that, under laws which passed Federal Parliament last year, they cannot claim deductions for vacant land even if they are building it to rent out.

More than 2.2 million Australians claimed $50 billion in rental deductions in 2017-18.

The agency contacts about 150,000 taxpayers, or their agents, each year about their rental claims.

In 2017-18, more than 9,000 people either amended their returns themselves or had their returns amended by the ATO as part of an audit.

These amendments added up to more than $25 million clawed back by the agency.

Tax time is near, but don’t lodge too early
A close up of several $100 notes
The Australian Taxation Office (ATO) is advising people to wait until the end of July before lodging returns, in order to minimise errors.

Assistant Commissioner Karen Foat said the agency recognised the COVID-19 pandemic had placed property owners and tenants in “unforeseen circumstances”, but reminded taxpayers about what deductions were and were not available under the law.

Banks have been offering mortgage holders loan repayment holidays.

The ATO says that since the interest is still accumulating on the loan, it is a legitimate tax deduction for those renting out their property.

“In these circumstances, rental property owners are still able to claim interest being charged on the loan as a deduction — even if the bank defers the repayments,” Ms Foat said.

Many tenants have been paying reduced rent or ceased paying during the pandemic.

Ms Foat said people still needed to include rent as income at the time it was paid.

“If payments by your tenants are deferred until the next financial year, you do not need to include these payments until you receive them,” she said.

“While rental income may be reduced, owners will continue to incur normal expenses on their rental property and will still be able to claim these expenses in their tax return.”

Ms Foat said some owners may have rental insurance that covered a loss of income.

“It is important to remember that any payouts from these types of policies are assessable income and must be included in tax returns,” she said.

Limited deductions for holding vacant land

Ms Foat also reminded Australians that deductions for vacant land were no longer available.

Previously those holding vacant land could claim a tax deduction for the costs of holding the land if it was held for income-producing purposes, or if they were carrying on a business to produce income.

But in the 2018–19 budget the Federal Government announced that from July 1, 2019, it would limit deductions for expenses associated with holding vacant land to land that was used for a business or was available for rent.

“For the 2020 year, expenses for holding vacant land are no longer deductible for individuals intending to build a rental property on that land but the property is not yet built,” Ms Foat said.

“So, if you are building a rental property, you cannot claim the deductions for the costs of holding the land, such as interest.”

Ms Foat said the change also applied to land people may have been claiming expenses on in the previous year.

“However, this does not apply to land that is used in a business, or if there has been an exceptional circumstance like a fire or flood leading to the land being vacant,” she said.

The exception was for people whose rental property was destroyed in the bushfires and who were currently rebuilding.

“[In that case] you can claim the costs of holding your now-vacant land for up to three years while you rebuild your rental property,” Ms Foat said.

Airbnb for private use? You can’t claim interest deductions

The impact of the coronavirus pandemic has been severe on short-term rentals such as Airbnb.

Ms Foat said despite the cancellation of existing bookings for a short-term rental property, deductions were still available provided the property was still genuinely available for rent.

“We recognise that circumstances over the past six months have seen many short-term rentals see cancellations or sit vacant as a result of either COVID-19 or bushfires,” Ms Foat said.

But she said if owners decided to use the property for private purposes, offered the property to family or friends for free, offered the property to others in need or stopped renting the property out, they could not claim deductions.

“If a property is not genuinely available for rent, you need to limit your deductions to the days when it is,” Ms Foat said.

“If you are allowing friends or family to stay in the property at a reduced price, you need to limit your deductions to the amount of rent received.

“If you or your family or friends move into the property to live in it because of COVID-19 or bushfires, you need to count this as private use when working out your claims in 2020.”

But generally speaking, she said people renting out a property in the 2019-20 financial year who had their income disrupted by COVID-19 or bushfires would still be able to claim expenses as tax deductions.

Steer clear of common errors

Ms Foat also reminded rental property owners to avoid common mistakes.

These include people claiming deductions for travel to inspect their rental properties, claiming interest on loan money for living expenses or holidays and claiming capital works as a lump sum rather than spreading the cost over a number of years.

“Repairs or maintenance to restore something that’s broken, damaged or deteriorating in a property you already rent out are deductible immediately,” she said.

“Improvements or renovations are categorised as capital works and are deductible over a number of years.”

The agency has also clarified the rules regarding work-related expense tax deductions and has warned people to wait until July to lodge their tax returns in order to minimise errors.

And generally it has advised people to have good records.

“The number one cause of the ATO disallowing a claim is taxpayers being unable to produce receipts or other documents to support a claim,” Ms Foat said.

“Furnishing fraudulent or doctored records will attract higher penalties and may also result in prosecution.”

Housing Prices In The First Half Of 2020 Dropping Slower Than Expected

The expected fall in property prices has been much more gradual that many predicted. While there has been some reduced demand for property recently this has been offset by a lack of stock, so we have a flattening of the housing price curve.

Here’s a great analysis from Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist, AMP Capital, recently published on the AMP Capital Website…

Introduction

Back on 19th March when we first looked at the impact of the intensifying shutdown of the Australian economy on the housing market (see here) we concluded that the impact would depend on how high unemployment rose. Our base case was a recession that saw unemployment rise to around 7.5% and would push average home prices down around 5%, but the risk was that a deeper downturn with say 10% unemployment could see a 20% fall in prices. Subsequent government support measures along with an earlier reopening of the economy have reduced the risk of worse case scenarios for home prices.

So far so good

Since March property sales have slowed to a crawl.

Source: Domain, AMP Capital
Source: Domain, AMP Capital

The combination of the need for social distancing and the banning for a while of traditional on-site auctions led to a sharp decline in properties for sale. In addition to this, the Federal Government’s JobKeeper scheme keeping around 3.5 million people in paid employment and a doubling in unemployment benefits along with bank mortgage payment holidays, all of which are for the six months to September, have helped head off an increase in forced sales that might have occurred given the size of the hit to the economy. So, while property demand has fallen, it’s been matched by a collapse in supply, which has left the property market in a bit of a twilight zone.

While listings have started to pick up a bit lately, they are still very low and this has all helped soften the blow to house prices that would have otherwise occurred, but prices are still starting to fall. According to CoreLogic, after slowing to just 0.2% growth in April, average capital city home prices fell -0.5% in May. Prices fell in all cities except Adelaide, Hobart and Canberra, with Melbourne -0.9%, Sydney -0.4% and Perth -0.6%. This has seen the monthly change in capital city home prices collapse from a peak of 2% in November.

Source: CoreLogic, AMP Capital
Source: CoreLogic, AMP Capital

So where to from here?

The positives for the property outlook

There are basically five “positives” for property prices.

  • Mortgage rates have fallen to record lows with deals around 2 to 3%. This is keeping mortgage debt interest costs as a share of household income well below historic highs even though the ratio of household debt to income is at a record high of around 200%. Low mortgage costs also make the funding costs for an investment property very low.
Source: ABS, RBA, AMP Capital
Source: ABS, RBA, AMP Capital
  • As noted above, while listings remain low.
  • Government support measures have provided a huge boost to household income, supported businesses, supported employment for around 3.5 million workers, prevented a confidence zapping surge in measured unemployment & with bank mortgage payment holidays (which has seen around 440,000 mortgage deferrals) are preventing a sharp rise in mortgage delinquencies and hence forced sales.
  • The shutdown, impacting mostly services jobs, has hit women and younger workers harder in contrast to past recessions which have hit male breadwinners harder and this may have helped keep down debt servicing problems.
  • China is running 2-3 months ahead of Australia with respect to the coronavirus shock and its experience provides some guide. While property sales were near zero in the peak lockdown month of February average property price growth slowed but did not go negative and is now picking up a bit.

The negatives

Against these positives, there are these big “negatives” for property prices flowing from the coronavirus shock.

  • High unemployment. We have long regarded the combination of high house prices and high household debt as Australia’s Achilles heel and so we feared back in March that a large rise in unemployment could trigger debt servicing problems, forced sales and so sharp falls in prices. As it’s turned out, measured unemployment is being suppressed and household incomes supported by stimulus measures. This is by design to help businesses, jobs and incomes hold up through the shutdown period. It’s likely headed off the worst case 20% decline in house prices scenario we saw in March. But once the support measures end later this year, measured unemployment will likely rise to around 8% and take a long time to fall back to the pre coronavirus levels around 5.2%. This in turn is likely to lead to some increase in mortgage defaults as bank payment holidays (for around 440,000 mortgages) end, boosting forced sales and act as a drag on property demand, albeit it’s unlikely to be anywhere near what would have occurred in the absence of support measures through the shutdown.
  • A big drop in immigration. Thanks to travel bans, the Government expects net immigration to fall to just below 170,000 this financial year and to around 35,000 next financial year from 240,000 last financial year. This is a huge hit and if it occurs – the Government could always allow a faster return of immigration – it will take population growth over 2020-21 to just 0.7%, its lowest since 1917.
Source: ABS, AMP Capital
Source: ABS, AMP Capital

It will imply a hit to underlying dwelling demand of around 80,000 dwellings over the next 12 months taking it down to around 120,000 compared to underlying demand last year of around 200,000. This risks resulting in a significant oversupply of dwellings, reversing years of undersupply that has maintained very high house prices since mid-last decade. A cut to immigration is not something China has had to deal with, so its property market experience is not directly translatable to Australia.

Source: ABS, AMP Capital
Source: ABS, AMP Capital
  • Falling rents and rising vacancy rates. Vacancy rates rose sharply in April and this plus rent relief is putting downwards pressure on rents. This will be further impacted by very low immigration. It will further weigh on investor demand and may cause problems for heavily geared property investors.
Source: REIA, SQM, AMP Capital
Source: REIA, SQM, AMP Capital
  • Measures to boost housing construction. Faced with a big reduction in housing construction activity over the year ahead, governments appear to be working on plans to boost activity to protect home builders’ jobs via new home building grants and possibly the construction of social housing. Normally first home buyer grants provide a boost in overall demand. But if the focus is just on boosting supply at a time when underlying demand is very low reflecting lower immigration it could add to downwards pressure on average prices. (Proposed moves from stamp duty to land tax in some states could provide a short-term boost to home prices but should be long term neutral if the same revenue is raised and it’s unclear whether or when it will occur.)

Concluding comment

Our worst-case scenario for a 20% decline in prices and those of others seeing 30% plus falls are unlikely thanks to support measures and the earlier reopening of the economy. To get these worst-case scenarios would require a “second wave” of coronavirus cases & so a renewed shutdown or another down leg in the economy in response to a surge in bankruptcies.

However, further falls in prices are still likely, as “true” unemployment (to become clear after September) remains high for several years, government support measures and the bank payment holiday end after September, immigration falls and likely government measures boost housing construction. Our base case is for national average prices to fall around 5-10% into next year. Sydney & Melbourne are likely to see 10% falls as they are more exposed to immigration and have higher debt levels whereas Adelaide, Brisbane, Perth & Hobart are only likely to see small falls and Canberra prices are likely to be flat.

This may be seen as a reasonable outcome in terms of making housing more affordable but without posing a big threat to the economy (via a downwards spiral of falling prices and negative wealth effects on consumer spending) at the same time.

QLD tenants to prove they can’t pay rent

In the latest Coronavirus development from QLD there’s some clarification about how protections for tenants will work. Housing and Public Works Minister Mick de Brenni has advised renters will need to prove their loss of income before applying for protection from eviction.

Read more in this article from By Rachel RigaGeorge Roberts and staff of the ABC…

The Queensland Government has backed down on its coronavirus rental relief package after the real estate industry waged a public campaign alleging the measures favoured renters over landlords.

Housing and Public Works Minister Mick de Brenni said renters suffering financial difficulty due to coronavirus would have to provide evidence of lost income if they wanted to be covered by a freeze on evictions.

“They are that you’ve lost more than 25 per cent of your income, or that you’ve lost so much of your income that you’re paying more than 30 per cent of your income on rent and you can’t afford the other necessities of life,” he said.

“I can’t put a dollar figure on that … that’s why there is real complexity to develop a framework.”

The Real Estate Industry of Queensland (REIQ) had previously called for a rental deferment system so landlords could recover lost income.

Mr de Brenni said it would be up to renters and owner to sit down and work it out.

“That will be a matter for tenants and landlords to work out in the best interest of the long-term security of tenure for those tenants and the financial security of the property owner,” he said.

“We will have a system in place to support the owner and it will include full disclosure of the financial circumstances of a tenant through a conciliation process.”

The REIQ said the changes to eviction freeze arrangements and rent deferrals “share the pain”.(ABC News)

The Government’s rental assistance package includes a six-month freeze on rental evictions, the ability to extend a lease for six months and a rental assistance grant of up to $500 per week for up to four weeks.

Mr de Brenni said the new guidelines would support landlords and tenants.

“We want to ensure the mum and dad investors out there, that this package takes into full account the concerns that they’ve raised over recent days,” he said.

“We know that for many of those mum and dad investors, they’re not rich, they’re not wealthy, they simply invested in a property for their family’s future.”

Mr de Brenni said renters would have to meet a high threshold if they wanted to break their lease.

“There are limited circumstances in which we will allow a tenant to break their lease with a week’s notice,” Mr de Brenni said.

Inspections would be able to take place if a landlord wanted to sell their property and there was no health risk.

However, if a tenant was self-isolating or in quarantine, a virtual inspection would be able to take place.

Property agents and owners would still be able to access the property for emergency and essential repairs, for example smoke alarm repairs.

The State Government announced a $20 million grant fund would be made available to support 7,000 households to assist with rental payments.

A special COVID-19 housing security committee would also be formed involving the REIQ, Tenants Queensland, the Queensland Council of Social Services, Q-Shelter and the Residential Tenancy Authority, to independently monitor landlords and tenants who needed to negotiated.

‘Share the pain’

The REIQ said the changes to eviction freeze arrangements and rent deferrals “share the pain”.

REIQ chief executive officer Antonia Mercorella said she was very happy with what she called a more balanced approach.

REIQ CEO Antonia Mercorella says she is very happy with what she calls a more balanced approach.(Supplied)

But she said she did not expect all landlords to be happy with the measures.

“I’m sure there will still be some owners who will take the view that it’s not their job to bear the loss and I’m sure on the other side there will be some tenants that will also be disappointed,” she said.

“But I think we’ve known from the very outset that this pandemic is causing pain and grief for all of us.”

‘There’s a power imbalance already’

Tenants Queensland (TQ) chief executive officer Penny Carr said Mr de Brenni’s latest announcement was disappointing.

Ms Carr said she was concerned about the people who could not negotiate rent reductions without having to defer a payment for later on.

“There’s a power imbalance already — you’ve got a process where you’re encouraging negotiations between the parties, which is the best way for it to happen, but at the moment there’s no way to determine those disputes via a third party,” she said.

“The person with less power — in this case it’s the tenant — is going to be at a disadvantage.

The REIQ says it does not expect all landlords to be happy with the measures.(ABC News: Markus Mannheim)

Ms Carr said landlords should also have to put something forward to show why they could not afford rent reductions.

“This is not anyone’s fault — we have got to try and find a solution that works for everybody,” Ms Carr said.

“We are not saying that rent should be reduced forever.

Ms Carr has called on Prime Minister Scott Morrison to drive the banks and lenders to contribute more.

State by State Coronavirus (COVID-19) Guide For Landlords and Tenants

Below is a collection of websites for each state that landlords will find useful in these Corona19 virus times. It’s important that you get your information from more credible sources than the media – much of what you read and hear in mainstream media is an interpretation by whoever is writing or speaking. And journalists sometimes get things wrong – yes, really. Your property manager should of course be all over this stuff, but they are pretty busy right now.

NSW:

https://www.fairtrading.nsw.gov.au/resource-library/publications/coronavirus-covid-19

Queensland:

https://www.rta.qld.gov.au/Forms-and-publications/Educational-resources/RTA-responds.html

South Australia

https://www.cbs.sa.gov.au/rental-advice-due-covid-19

Victoria

https://www.consumer.vic.gov.au/resources-and-tools/advice-in-a-disaster/coronavirus-covid19-and-your-rights

Western Australia:

https://www.commerce.wa.gov.au/consumer-protection/covid-19-coronavirus-consumer-protection-faq

Tasmania:

https://www.cbos.tas.gov.au/topics/housing/residential-tenancies-covid-19-emergency-provisions

The ACT:

https://www.covid19.act.gov.au/

The NT:

The NT Government website doesn’t have much, but this is something from the Darwin Community Legal Service which might be useful:

https://www.dcls.org.au/about-us/coronavirus-information/

Mandatory industry code for commercial and retail leases

Finally, we have some clarity for landlords negotiating this new Corona virus world. This is an explanation of the mandatory Commercial Tenancies Code. Landlords and tenants will be sharing the pain. For a landlord, claiming every tax deduction will be critical – and that includes depreciation.

Read more in the following article by Sian Sinclair of Grant Thornton.

After continued jostling with industry groups over the weekend, Prime Minister Scott Morrison today revealed the final details of the mandatory Commercial Tenancies Code for commercial and retail leases. This is generally in line with the update the Prime Minister gave last Friday.

The intention of the Code is to preserve the commercial leases in place and leave both the tenant and the landlord in a position to pick things up again once the period of hibernation is over.

Now agreed upon, the Code will be legislated and managed by the States and Territories and will be subject to binding mediation. The two core principles underpinning the Code will be good faith and proportionality, with landlords and tenants urged to work together on how to best manage rent relief going forward.

  • Who does the mandatory code apply to?
    The code will apply to tenants with a turnover of $50m or less.
  • Tenants that have experienced a 30% or greater loss in revenue.
  • Tenancies where the tenant is participating or will participate in the JobKeeper program.
  • What does rent relief look like?
    Landlords are expected to negotiate in good faith and ‘share the pain’.
  • The rent relief should be proportionate to the reduction in turnover and should comprise waivers and deferrals.
  • Waivers must account for at least 50% of the reduction.
  • Any recoupment of deferred rent will be over the duration of the lease period or a minimum of 24 months. This means if a tenant has six months left on their lease, they should be offered a 24 month period to pay any deferred rent.
  • Landlords cannot terminate a lease on the basis of non-payment, nor dip into bonds to cover unpaid rent. Those who choose not to engage may forfeit themselves out of the lease.
  • Tenants are expected to honour their obligations under a lease (i.e. they can’t just walk away, which was one of the industry concerns when the initial guidelines were announced).

While the eligibility for JobKeeper is currently uncertain, those with rental arrangements that fall outside of the Code (generally turnover above $50m or less than 30% reduction in turnover) will need to negotiate with their landlords without the protection of the Commercial Tenancies Code. Interestingly, many landlords could find themselves offering significantly different lease concessions on a lease by lease basis, depending on which of their tenants are eligible for JobKeeper. A one size fits all approach does not apply, hence the message to negotiate in good faith.

We anticipate there will be additional information to come from the States and Territories about how this will be applied in each jurisdiction, as well as announcements of additional relief on land tax and rates – on the proviso this is passed on to the tenants.

The Prime Minister stressed that the banks will be key to making this work, and urged international banks operating in Australia to provide the same level of support as the national banks have to date. How the support of the banks can be formalised remains to be seen, particularly where international funding is involved. Mortgage payment deferrals are a cash flow inconvenience for banks and currently, these are only for facilities below $10m, so we would like to see some real support in the form of interest waivers or suspensions during any “rent-free periods” required under the Code. There isn’t a sharing of the pain unless the banks are forgoing some income – as with all other parties involved.

The Prime Minister confirmed that residential rent relief will be considered and implemented by each State and Territory and not by the National Cabinet.

 

Moratorium on Evictions in response to Corona Virus (COVID-19)

The federal government have acted quickly with measure to prop up the economy as it battles the Corona virus. The directions to landlords and tenants hasn’t been very clear, though. Hopefully in the coming days there will be some clarity. One thing is for certain, though. Investors will want to claim every deduction they can – and that includes depreciation.

Read more in the following article reproduced from Greg Tacadena of Your Investment Property Magazine…

Tenants who have the financial capacity must continue to pay rent even with the moratorium on rental evictions in place, according to Housing Minister Michael Sukkar.

In a TV interview with ABC News, Sukkar said that the moratorium on evictions amid the COVID-19 outbreak does not necessarily mean that tenants can skip paying their rents.

“Unless you have an arrangement with your landlord that takes into account your financial circumstances, you are required to pay your rent. The moratorium applies to make sure that people do not find themselves without a home,” he said.

Sukkar assured that the national cabinet is exploring options and proposals to set a framework that can help landlords and tenants make an agreement about rental payments.

“To the greatest extent as possible, we want flexibility. We want landlords and tenants working it out for themselves,” he said.

Adrian Kelly, president of the Real Estate Institute of Australia, said Sukkar’s message should clarify the issue about rents and the moratorium on evictions.

“A moratorium on evictions doesn’t mean rent is not payable, it is. If circumstances mean that payment in full is not possible it is a holding off from payments, not a cancellation,” Kelly said.

However, Kelly urged the state governments to step up and provide assistance to Australians to help them continue to pay their bills, including rent.

“The rent cash flow ensures that everyone wins and I unashamedly include the real estate agent in that. We need income in order to continue to employ our property managers who are at the coal face of looking after both tenants and landlords,” he said.

Furthermore, Kelly said it is counterintuitive just to leave tenants and landlords to sort things out themselves.

Sukkar said in the ABC News interview that the national cabinet is already considering some proposals to set a standard.

“I’m sure there will be a framework of minimum standards and requirements. It’s not in any landlord’s interest to lose a great tenant who is going through a short-term difficulty. I’m sure landlords understand that. But we need to put in some minimum standards,” Sukkar said.

In an earlier statement, Ben Kingsley, chairperson of PICA, landlords must also be provided with assistance from the government. PICA outlined some of their suggested policies that would help landlords amid the outbreak.

“Let’s be clear — landlords understand the situation. The vast majority are hardworking, average Australians who own just one rental property,” Kingsley said.

What Property Deductions Will Be Targeted By The ATO this year

Chris Jordan from the ATO recently announced that property investors and their deductions were next in his sights after the success of his crackdown on work-related expense.

Apparently, in a test audit of 300 property investors, 90% made errors. With a success rate like that, it’s no surprise the ATO are keen to roll their sleeves up and tackle investors seriously. Read the full article by Jessica Irvine published in The Sydney Morning Herald below:

The $47 billion in deductions claimed against rental income every year will face tougher scrutiny from the Australian Taxation Office after more than 300 audits of investor returns revealed errors in nearly 90 per cent of cases. More than 2.1 million Australian taxpayers declare rental income to the Tax Office each year, but a check of returns has unearthed widespread errors in the popular tax deduction.

“A lot of people are getting things a little bit wrong, which adds up to a lot,” Tax Office commissioner Chris Jordan told The Tax Institute’s national convention in Hobart on Thursday.

Mr Jordan warned that property investors were now his “next focus”, following a successful crackdown on inappropriate work-related expenses, which has yielded $600 million in extra tax revenue. For the first time in nearly a quarter of a century, the average work-related expense claim fell by, on average, about $130 a year for the past two years.

They will look at interest wrongly attributed and erroneous claims on holiday houses

Property owners can now expect to receive the same attention from the Tax Office.

“Our next focus is rental income and deductions,” Mr Jordan said, revealing the random audits had unearthed myriad errors by property investors.

“We’re seeing incorrect interest claims for the entire investment loan where it has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.”

Property owners declare about $44 billion in rental income and $47 billion in costs associated with property ownership – including interest on loans – meaning the nation’s landlords are, on average, “negatively geared”, with expenses exceeding rental income. These rental losses can then be used to reduce tax payable on other income.

“And when you consider that rentals include over 2.1 million taxpayers claiming $47.4 billion in deductions, against $44.1 billion in reported income, you can get a sense of the potential revenue at risk,” Mr Jordan said.

Of the nearly 2.1 million taxpayers who declared an interest in a rental property in 2015-16 – the latest year for which statistics are available publicly – 1.3 million reported a net rental loss for the year. Just over 800,000 were “positively geared”, with rental income exceeding expenses.

The ranks of positively geared investors swelled over the first five financial years of this decade, the figures show, thanks to a combination of falling interest rates and higher rents.

Declared rental income rose sharply, from about $34 billion to almost $42 billion. Declared interest expenses fell from about $24 billion to $22 billion over the five years.

But “other rental deductions” rose sharply, from $15 billion a year to $20 billion, and it is these deductions that are now in the ATO’s firing line.

In the May 2017 budget, the Turnbull government cracked down on the ability of landlords to claim the cost of travel to their rental properties as legitimate deductions, yielding half a billion dollars in revenue over four years.

Property investors also face a further tax crackdown under a Labor government, which has promised, if elected, to stop the landlords of newly purchased, established dwellings from being able to claim net rental losses against their other assessable income. Property investors who buy newly built properties will still be allowed to negatively gear them.

Labor’s changes would be grandfathered, so that all owners of existing investment properties will be able to continue to tax deduct net rental losses until they dispose of the property.

As this article demonstrates, the ATO are keen to ensure property investors are only claiming deductions that they’re entitled to under the current regulations. It’s likely incorrectly claimed Depreciation deductions may also dray attention.

The treatment of second-hand Assets in residential properties will be a special focus – remember, commercial properties were not affected by the 2017 changes.

It has been almost 2 years since the changes to the treatment of Assets were announced and some Depreciation Schedule providers are still getting it wrong. There are thousands of incorrect Depreciation Schedules out there and they will be landing on accountant desks this tax season.

Another deduction easy to target is the treatment of Special Levies. Too many people just claim Special Levies in the way they claim other strata fees.

Broadly speaking, the purpose of the Special Levy and the length of time someone has owned a property dictate the treatment of a Special Levy. Your accountant will be able to advise the correct treatment.

New Property Depreciation Landscape – Your essential guide

In November 2017 new depreciation legislation passed that has affected the depreciation entitlements for some residential property investors. We’ve spoken with many confused investors and accountants needing to get up to speed on the changes in the following months.

We’ve run several webinars covering the changes to the depreciation rules in detail and have been getting some great feedback, so we’re making a recording of the webinar available here. The New Property Depreciation Landscape video is a little over 20 minutes and covers all the ins and outs of the new Depreciation rules. If you’re a serious investor, tax or real estate professional and want to understand the new Depreciation rules this video is for you.

If you have any questions relating to a specific property, we’re always happy to assess properties free of charge and provide a no-obligation quote, just call us on 1300 66 00 33.

June 30 Property Depreciation Deadline

It’s about that Depreciation Schedule you have been putting off.

June 30 is going to sneak up on us and your accountant is going to need it.

We might already have most of the information we need to jump on it – we might just be waiting for you to press the button

To book a new Depreciation Schedule or get your job moving, call us on 1300 66 00 33. or email enquiries@depreciator.com.au

Are you on top of the changes to depreciation that were announced last year? You should be. To read a very simple explanation, just click here.

There are now a lot of incorrect Depreciation Schedules out there – many providers are not up on the changes. The ATO will be looking out for dud Depreciation Schedules and you want to make sure yours is not one of them.

We can also explain the changes over the phone and tell you in that phone call how much depreciation you might be entitled to. Just call 1300 660033.

Apart from organising your Depreciation Schedule, now is the time buy any Assets (fixtures and fittings) your property needs. Remember, Assets under $300 are deductible and Assets between $300 and $1,000 can go into the Low Value Pool for fast depreciation.

It’s also a good time to do repairs you might have been putting off – better to spend that money closer to June 30. Be sure you know the difference between a ‘repair’ and an ‘improvement’. The ATO certainly know the difference, and their definition of a repair might surprise you. We covered this and lots of other useful stuff in our FREE ebook.

Don’t forget if you refer a friend who goes ahead with a Depreciation Schedule, we will send you a $40 EFTPOS voucher. You must use our referral link, though.

Property Depreciation Changes – 2017 Budget

Depreciation Changes – 2017 Budget

Well, that caught everyone by surprise.

We are fielding plenty of calls from confused property investors. The waters are still a bit muddy, but here are a few points that might clarify some things:

1. This only applies to residential investment properties purchased after 7.30pm on May 9, 2017. ‘Purchase’ is generally defined as the date you put down a deposit on your investment property and contracts are signed and exchanged.
2. So if you already own your investment property, you are not affected. This is called ‘grandfathering’. It means changes are not retrospective.
3. The changes affect Plant and Equipment. A more common name for this stuff is Depreciating Assets: stoves, carpet, air con, curtains, and blinds etc.
4. If you buy a second-hand investment property, you will no longer be able to depreciate the stove, carpet etc.
5. The reason for this is simple. The government wants to stop the same items being depreciated over and over by consecutive property investors.
6. Depreciation on the building itself is not affected.
7. With a new investment property, you should still be able to depreciate the Assets because you are the first owner of them.
8. If you bought an investment property new, lived in it for a while and then moved out and turned it into a rental property, you should be able to depreciate the Assets because you are the first owner of them.
9. Commercial property is not affected.

The above is our interpretation of the changes on the 9th of May in the 2017 Budget and there are things yet to be confirmed. Given the uncertainty, if you are sitting on a property that needs a Depreciation Schedule, do it now. Call us on 1300 66 00 33.