Rental properties and holiday homes are once again in the sights of the Australian Tax Office, which has had growing success identifying erroneous claims.

Last year about 70 per cent of returns related to investment properties audited by the ATO had to be amended, most often because of incorrect expenses or earnings claims.

Regulators have ramped up digital data matching from online platforms such as Airbnb to keep a closer eye on the booming sector. But be careful not to short-change yourself either. There are some claim areas investors regularly overlook too.

So, as we run down to the end of the financial year, it’s a good time to brush up on the dos and don’ts of claiming for a rental property.

Money in vs money out

Property investors can claim costs associated with leasing and maintaining an investment property. This includes borrowing expenses and interest, but not principal on loans.

However, investors must also declare all income earned renting the property out, and expenses can only be claimed for the period it was leased or genuinely available for rent. If you earned more than you spent in any given financial year, your property is positively geared. If you earned less, it is negatively geared, and your losses can be offset against other income streams.

What can you claim and when?

Most ongoing expenses can be claimed in the year they’re incurred including:

• Mortgage interest.
• Council rates and water charges.
• Cleaning, gardening and pest control.
• Insurance.
• Body corporate fees.
• Advertising and property agent charges (including photography for rental listings).
• Banking and bookkeeping fees for accounts used for rent and upkeep payments.
• Repairs and maintenance including appliances to keep the property in a tenantable condition, such as replacing a damaged fence.
• Security costs (new keys cut).
• Depreciating assets under $300.

Some major, or one-off, expenses can only be claimed over several years and they include:

• Depreciation on construction costs (if a home is post-1985), or depreciation on more recent major structural improvements.
• A specialist quantity surveyor can help with this.
• Borrowing costs of more than $100 (such as loan establishment fees, lenders mortgage insurance, search fees, solicitor and mortgage broker fees).
• Depreciating assets over $300 such as new (but not second-hand) fridges, washing machines, dryers and carpeting.

Initial repairs. If you bought a property that had defects or damage, addressing this is classed as capital work and must be deducted over several years. This is unlike repairs due to wear and tear of ongoing rental that can be claimed in the year the expense is incurred.

What you can’t claim

A lot of investors get caught out not separating private versus rental use in claims for holiday homes. You cannot claim expenses for the time a rental property is used privately. If a holiday home is used privately for six weeks each year, then expenses such as rates can only be claimed proportionally for the 46 weeks the house is available to rent.

Common mistakes

1. Not declaring all income: The ATO has expanded the data it receives from online rental platforms, along with rental bond authorities and insurers. Investors must declare all income earned, which includes things such as letting and booking fees, bonds and deposits that are kept, insurance payouts and any contributions from tenants.
2. Not splitting claims on jointly owned properties: People who jointly own an investment property must split the deductions evenly against both parties’ incomes.
3. Property not genuinely available for rent: Expenses associated with running a rental property are not deductable if the property owner doesn’t genuinely intend to earn an income from it. Red flags may go up if you have a negatively geared property that has multiple restrictions on availability such as:
   • • It is reserved for private use during holiday periods and is unlikely to rent outside of these times.
     • References are required for shorts stays and the property doesn’t allow children.
     • It is not widely advertised.
     • Rental rates are considerably higher than market value.
4. Muddling repairs and renovations: Repairs are works considered strictly necessary to keep your home in a tenantable state, for example if a shower screen breaks or carpet is flooded. Renovations to update a kitchen or bathroom are not repairs but capital works and therefore not immediately claimable as an expense, although you may claim depreciation over several years.

Top tips

1. Pre-pay to claim ahead: Property investors can pre-pay expenses up to 12 months in advance to claim an immediate deduction in the current tax year. For example, payment of an insurance premium paid on January 1 that provides cover for the calendar year can be claimed entirely in the financial year ending in June. Owners can generally claim immediate deductions for prepaying:
   • • Expenses of less than $1,000.
     • Expenses of $1,000 or more where the service period is 12 months or less.
2. Look for depreciation potential on previous owners’ construction and renovations. Buyers may be able to continue to depreciate capital works on homes built after 1985, or major structural renovations completed by a previous owner. Also, if a previous owner has installed new appliances expressly to sell a property and they have not been used, you may be able to claim depreciation on these. A quantity surveyor and tax specialist can provide more detailed advice.

The range of deductions available will no doubt factor into choosing an investment property. If you’re considering entering the market contact me any time to consider your options.

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If you’re on the hunt for a new property, it’s worth checking your budget still covers the extras that can add tens of thousands to your costs.

In the past two years, the average house price in Australia has leapt more than 30 per cent.

That can have a major impact on extras, particularly fees that vary based on the value of the property.

• Among the charges to take into account so you don’t get caught short are:
• Stamp duty (sometimes called transfer duty).
• Transfer fees.
• Building and pest inspection.
• Mortgage registration and transfer fees.
• Conveyancing and legal fees.
• Loan application or establishment fee.
• Lenders mortgage insurance.
• Council rates.

Do your homework, as different State and Territory Governments levy different amounts and have varied exemptions for first-time, lower-income or off-the-plan buyers. The cost of your home will often determine whether you are eligible for discounted fees, so going over budget in a hot market can have a knock-on effect. Contact me if you’re unsure how different charges apply to your situation, and we can run a quick check on your current budget.

Stamp duty

Let’s tackle the largest fee first. What is stamp duty anyway?

In Australia, it dates back to the 1800s when governments stamped transfers of title deeds to track ownership and ensure people were buying from the rightful owner.

It’s now a significant source of revenue collected by State and Territory governments and can vary widely.

The median price of a home in Australia is $920,100 and, depending what State you’re in, stamp duty can range from $27,255 in Queensland to $50,276 in Victoria.

Many States offer exemptions or discounts for first home buyers, or owner-occupiers buying off-the-plan, but it’s usually restricted to properties priced significantly below the market average. Check what exemptions your State or Territory currently has in place, as there are substantial savings if you can make it work.

There’s always talk about doing away with stamp duty, but don’t get too excited. Taxes rarely vanish, they’re just levied in new and exciting ways. Most economists argue an annual property tax would be more stable, efficient and fair, saying stamp duty disproportionately taxes those who move house more often. The ACT is half-way through a 20-year plan to transition from stamp duty to property tax. NSW is proposing reforms on an opt-in basis with buyers able to choose between paying stamp duty or an annual land tax when they purchase a property.

Building and pest

It’s becoming more common for sellers to have their own building and pest report commissioned and made available to prospective buyers which can cut this cost. However, some buyers may still be more comfortable seeking their own.

Building and pest inspections aim to identify structural defects, damage, drainage issues and signs of infestation by problem insects such as termites.
Depending on the property, you may also consider a pool inspection (about $200) or a plumbing inspection (about $300) to run a camera down stormwater and sewerage.

Mortgage registration and transfer fee

This charge covers administrative costs to link mortgages to land titles. The aim is to prevent homeowners selling up without repaying lenders. The title transfer for a property can’t go ahead if it is still linked to a mortgage. This means the seller needs to own it outright, or have had the mortgage discharged (and, of course, paid the Government’s mortgage discharge fee).

Conveyancing and legal fees

Conveyancing is the process of preparing all legal documents involved in the purchase of a property. Conveyancing can be done by a conveyancer, solicitor or even the buyer or seller themselves if they’re looking to save money. They dot the i’s and cross the t’s to ensure the exchange of money and titles runs smoothly. The solicitor or conveyancer represents your interests, and their duties include conducting land title searches and checking details on the contract of sale to organising when payments need to be made to settle the sale.

Loan application and establishment fees

This one-off fee covers the cost of processing documents to set up a new mortgage. It may include a valuation fee for the property. Lenders will sometimes waive establishment fees.
Lenders mortgage insurance

LMI is generally applied when borrowers have less than a 20 per cent deposit. This insurance protects lenders, not borrowers, even though borrowers pay the premiums. In the event a mortgage holder defaults on a loan and the property is sold, if the sale price doesn’t cover the outstanding loan, LMI pays out the balance to lenders. Borrowers, however, may not be off the hook, as insurers can pursue them for the cash.

Single parents, first home buyers and regional buyers can by-pass LMI through the Federal Government’s Home Guarantee Scheme, but places are limited. Under the scheme – set to expand to 50,000 positions in 2022/23 – the Government acts as guarantor for borrowers with as little as five per cent deposit or, in the case of single parents, two per cent. Applications can be made through mortgage brokers, so get in touch to find out more.

Council rates

You will need to pay council rates pro-rata to cover the quarter in which you bought the home. There will also be fees for connecting utilities.

Hidden costs of home buying, using WA as an example:

*Transfer Duty exemptions: First-home-owner exemptions are available in WA on properties less than $430,000. A concessional rate of about 20 per cent ($19.19/$100) applies from $430,000- $530,000 and above that, normal residential rates apply. A 50 per cent discount (capped at $50,000) is also available for off-the-plan properties purchased before 24 October 2024.

**LMI generally only applies to loans where borrowers have less than a 20 per cent deposit.

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NEW SOUTH WALES

Sydney

After sitting at the top of the charts in recent years (an 85 per cent surge since 2013!), the Sydney market is finally off the boil and predicted by BIS Oxford Economic to have the slowest growth among capital cities in the next three years (3 per cent). But it’s not all doom and gloom with a strong jobs market, population growth and a robust economy expected to keep things buoyant.

Elsewhere

Not surprisingly, the hottest Sydney barbie topic is the escape plan, as those feeling the property pinch look for greener regional or interstate pastures. The exodus has been helped along by the $750,000 stamp duty concession ceiling, which seems generous but not in a market with a median price of $1.1 million.
A couple of hours up the Pacific Highway, Newcastle – once dependent on mining and steel production – is a growing and diverse, self-sufficient economy, now luring Sydney-siders. Similarly, Wollongong to the south offers mortgage relief, plus job, study and vibrant social prospects.
The good news for homesick Sydney-siders is that both these hubs are within two hours of the capital.

QUEENSLAND

Brisbane

After crawling along in recent years, Brisbane is once again having its moment in the sun – 238 days of sunshine each year, to be precise. The Queensland capital is forecast to have the country’s biggest surge (13 per cent) over the next three years.
Despite a much-publicised oversupply of inner-city apartments, Brisbane property prospects are bright. Game-changing investment in tourism and transport infrastructure, a precinct plan to disperse jobs beyond the CBD and interstate migration are just some of the factors contributing to Brisbane’s appeal.

Elsewhere

The Gold Coast is expected to maintain a post-Games glow as it continues to position itself as more than a holiday destination, while the Sunshine Coast is also predicted to experience long-term capital growth on the back of increased infrastructure. Further north, Townsville’s $2 billion investment in mining, military and port projects is boosting its local economy and property market.

VICTORIA

Melbourne

While not quite as phenomenal as Sydney’s surge, Victoria’s capital has gone gang-busters in the last five years (65 per cent growth). And while the market has slowed considerably with investors cooling their heels (especially over apartments), strong overseas and interstate migration is predicted to fuel the owner-occupier market and drive moderate 6 per cent growth over the next three years.

Elsewhere

Satellite hubs Ballarat and Geelong are not just within striking distance of Melbourne but growing increasingly self-sufficient as they transform their industrial roots into new jobs and capitalise on more relaxed lifestyles. Geelong is one of the fastest growing regional property markets in Australia (10 per cent), while pundits have described Ballarat’s revival as its second gold rush.

NORTHERN TERRITORY

Darwin

The Top End hasn’t quite lived up to its name, slumping 19 per cent over the past four years after rising and falling on the back of the resources sector. The Territory’s capital has been left with a housing glut, which may not be corrected until closer to 2021. Interestingly though, while capital gains have gone south, Darwin rental yields are defying the oversupply, remaining among the country’s strongest at 5.8 per cent.

Elsewhere

The most sparsely populated of our states and territories, the Northern Territory doesn’t have many hubs outside of its capital. Darwin’s secondary city Palmerston relies on Darwin’s economy for its success so has suffered the same resources slide.
Alice Springs, on the other hand, could be the Territory’s best-kept secret, thanks to a housing policy change for employees at the nearby US Pine Gap spy base. Employees, who used to have housing supplied, are now required to rent or buy themselves, driving sales up and rental vacancies down.

WESTERN AUSTRALIA

Perth

Patience might be the key to Perth’s market, which looks like it is finally bottoming out after sliding with the resources sector. There are mixed predictions for the next few years. Some market gazers tip further, minor dips, while others claim the economy is rebounding with strong jobs growth and increasing export demands.

Elsewhere

Nowhere has the mining slump been felt more keenly than regional Western Australia. The brunt has also been borne by non-mining towns, including Bunbury and Broome, but green shoots are peeking through. Bunbury is looking to shed its image as just an industrial port with investment in waterfront, lifestyle precincts and a digital economy. Broome, once dependent on its pearl industry, is looking to capitalise on food production. How Western Australia diversifies and sheds its reliance on mining will have a big impact on its regional economies and property markets.

SOUTH AUSTRALIA

Adelaide

Holden shutting shop in the city’s north last year cast an economic shadow over the city of churches. But it’s set to be something of a quiet achiever, with shipbuilding set to fill the Commodore-shaped hole. BIS Oxford Economics predicts 9 per cent property price growth for Adelaide over the next three years.
Investors, however, might be less enamoured. Weekly rental returns are among the nation’s lowest for a capital city – and going backwards, while rents in the rest of the country are on the rise.

Elsewhere

Despite struggling with an energy crisis and the ripple effects of the auto industry shutdown, South Australia’s economy is growing at its fastest rate in a decade.
Ironically, the electricity fiasco sparked investment in new energy infrastructure and exploration, while its mining sector has defied the downturn of other states, thanks to uranium prospects and hydrocarbons.
The benefits seem yet to flow through to property prices in regional centres but rents in South Australia’s outback have been on the rise, with returns sitting at about 7 per cent.

TASMANIA

Hobart

Hobart, long-overlooked as a property play, is now turning heads. The Apple Isle’s capital is currently the country’s strongest market, with 35 per cent growth in the past three years. Affordability has no doubt been a factor – at $485,000, Hobart’s median house price is a fraction of Sydney’s and about half of Melbourne’s. But so too has its hipster, foodie and culture cred, fuelled by its much-lauded Museum of New and Old Art (MONA) and increased tourism. Traditionally an owner-occupier market because it was so cheap, Hobart now has a shortage of rentals.

Elsewhere

In a state as small as Tasmania, it’s not surprising the capital’s surge has overflowed to regional centres. Sentiment is particularly optimistic in the north, with Launceston hitting record numbers of house sales early this year. Despite talk of the Tassie market peaking, there are still bargains to be had. The West Coast remained the most affordable region with a median house price of just $80,000.

AUSTRALIAN CAPITAL TERRITORY

Our nation’s politicians would love to poll as optimistically as our country’s capital. Second to only Brisbane in growth predictions, the Canberra housing market looks set to rise 10 per cent over the next three years.
The rental market also remains one of the country’s steadiest and strongest (its average weekly rent of $528 sits just behind Sydney’s $582), thanks largely to its government-centric employment and higher-than-average wages.
Click here for article references

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Price growth

While property is a long-term proposition, it’s worth comparing the last five years of price growth from suburb to suburb. If one suburb has moved beyond your reach, check out the performance of neighbouring postcodes. You might time it right to catch a suburb on the rise.

Days on market

If most homes are selling in 30 days or fewer, the suburb is probably booming. Most homes in Australia take 30 to 120 days to sell, so if a suburb is moving most of its properties in 40 or fewer days, it’s worth closer inspection.

Clearance rates

A clearance rate is the percentage of properties sold at auction over a week or a month. Interest rates, the time of year and competing events can all affect clearance rates. In major cities, a suburban clearance rate of 70 per cent or more is a positive indicator. A high auction rate can also be a sign that agents and sellers are confident demand in the suburb is strong.

Rental yields

Look for steady rental yields. Rental yield is the median rental income over a year as a proportion of the median property value. Rental yields can remain high even in stagnant property markets, especially if there is little rental stock, so it is one factor to be considered with a range of others.

Vacancy rates

The lower the vacancy rate, the higher the demand for rental properties, which is often a sign of market health. However, a glut of apartments might have no effect on house prices in the same suburb so be careful not to make assumptions on vacancy rates alone.

Other factors

No single metric can sum up a suburb’s prospects. Beyond the data there are a range of other factors that can influence local property markets, including existing and planned transport and roads, the quality of local schools, restaurants and cafes and community spaces, such as parks.
Do your homework, and once you have homed in on a suburb, talk to me to help you find a loan that is right for you.
Click here for article references

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One in two Australian home buyers¹ now borrow via a broker. A dip in sentiment towards traditional banks, tighter lending criteria for investors and better-educated consumers have all helped boost mortgage brokers’ popularity over the past decade. There are, indeed, a raft of reasons to turn to a broker for your next home loan. Here are eight to get you started.

01
Freedom of choice

Brokers generally give you access to multiple loans from multiple lenders. Compare that with the loan options you might be presented with by a single lender. At the end of the day, competition and choice are the most powerful benefits a broker brings to the table and it’s the reason so many Australians have one onside.

02
You don’t pay a fee

Most brokers don’t charge their clients an up-front fee to use their services (and if they do, they need to give you a Credit Quote for your agreement). Brokers receive payment from lenders in the form of a commission and are required by law to disclose the details of these payments under the National Consumer Credit Protection Act to ensure transparency and to give you the peace of mind you’re after. Ask your broker to provide an overview of his or her commissions when you meet.

03
Save time

Why spend your valuable time researching home loans when a broker can do it for you? It’s the broker’s job to do the hard yards when it comes to your homework. A broker will make the most of your appointment time to get the necessary information to narrow down and present you with easy-to-understand options, saving you hours of online research and hard-to-translate comparisons.

04
It’s all about you

06
Smooth sailing

Buying a home and taking out a loan is an exciting and momentous milestone, but also a stressful process. Brokers ease many of the pain points by dealing with the lender and managing your application process through to approval. Brokers can also arrange after-hours appointments to fit your schedule, rather than the schedule of just one bank or lender.

07
The latest legislation

It’s also a broker’s job to stay up to date with legislation so they can make the right recommendations for customers and ensure they meet lending requirements, which have tightened in recent years to reduce the risk of loan defaults and help maintain a stable economy. Brokers stay across industry, economic and regulatory shifts to avoid unexpected roadblocks for borrowers.

08
Home loan health checks

Just like you get a check-up with your GP, your broker can run a regular health check on your home loan to see if it’s still right for you. Competition remains high in the mortgage market so it’s always worth asking your broker to reconsider your options. You could be paying off your loan sooner and saving thousands on interest repayments with a product that is better suited to your needs.

1 www.canstar.com.au/home-loans/should-you-use-a-mortgage-broker

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It’s no secret tax deductions, in addition to capital gains, remain a carrot for property investors. But tax rules have tightened, and the landscape is always shifting, making it hard for the average person to keep up with what’s claimable, and what’s not.
With June 30 creeping up, Haven looks at tax impacts for property owners and how to maximise returns.

Property purchase costs

Expenses you incur when buying an investment property – i.e. the actual property cost, stamp duty, legal fees and inspections – can’t be claimed immediately as tax deductions¹. But they can be added to the purchase price when you eventually sell to reduce your capital gains tax (CGT). If, for example, you pay $400,000 for a property, plus $16,000 in stamp duty² and $1,500 for conveyancing, your cost base increases to $417,500, reducing the profits that attracts CGT³. Similarly, you can deduct from your sale price any costs associated with the property’s disposal, including agent and advertising fees.

Borrowing expenses

To many investors’ surprise you also can’t claim borrowing costs straight up in that income year, unless they are under $100, which is unusual. Borrowing expenses include loan establishment fees, title search fees, lender valuation fees and mortgage fees. Instead, these costs must be claimed over five years.

Depreciation

When you spend more than $300 on a permanent fixture or fitting for your investment property, such as a dishwasher, air-conditioning or carpet, the ATO requires you to spread the cost of the capital item across the item’s ‘effective life’. In other words, the length of time it is considered usable. As the value of the item diminishes over time, this type of claim is known as depreciation. Rules around depreciation have tightened recently. Previously you could claim some items that came with the property. Now, you can only claim on capital items you buy yourself.

Capital gains

When you make more than $30,000 profit on an investment property you must pay capital gains tax. CGT is applied at the same rate as your income tax rate, so if your personal tax rate is 25 per cent, so too is your CGT rate. However, if you hold a property for more than 12 months, the ATO will give you a 50 per cent discount on CGT.
Some investors will aim to sell a property at the beginning of the financial year, so they have as long as possible until they have to pay CGT come tax time. Other investors may try to avoid paying CGT by purchasing a property through their self-managed super fund, paying the loan off through super contributions and selling once they have retired⁴. Make sure you speak with your financial advisor or tax specialist to understand the implications of this strategy for your situation.
Capital gains tax also doesn’t apply to the sale of your own home, unless you have rented part of it out, or used it for a home business and claimed deductions against it⁵. Property purchased before 20 September 1985 is also exempt from CGT⁶.

Property inspections

Up until 30 June 2017, investors could claim travel costs associated with maintaining their property, including two inspections a year. The ATO has now closed that window, denying travel deductions for maintenance, inspections, attending body corporate meetings or collecting rent. If your investment property is far afield, you might come up shorter on your tax return this financial year.

Working from home

With nearly a third of us now working regularly from home⁷, chances are you can claim some deductions on your place of residence, even if you don’t run a home-based business. The ATO will allow you to claim equipment, such as printers and computers, and a portion of energy and internet costs if you work at home⁸. If you have a separate, dedicated home office you may also be able to claim depreciation on fixed fittings, such as flooring and lights. Just note, working from home does not entitle you to claim any part of your rent, mortgage or home insurance, unless you operate a home business.

Expert advice

With tax rules changing year on year, it’s important you speak with your accountant or financial adviser to find out what you can and can’t claim in your situation.
Tax: the information in this article does not constitute advice. As taxation legislation is complex we recommend you speak with your financial advisor, tax advisor or contact the ATO for further details and expert advice regarding your personal circumstances.
1 www.yourmortgage.com.au/home-loan-guide/what-tax-deductions-are-available-for-property-owners/246761/
2 Fictitious figure only due to state/territory stamp duty variances
3 https://propertyupdate.com.au/understanding-capital-gains-tax/
4 www.finder.com.au/capital-gains-tax-selling-property
5 https://propertyupdate.com.au/understanding-capital-gains-tax/
6 www.finder.com.au/capital-gains-tax-selling-property
7 www.smh.com.au/business/careers/one-in-three-australian-workers-now-regularly-work-from-home-20160921-grl3a1.html
8 www.yourmortgage.com.au/home-loan-guide/what-tax-deductions-are-available-for-property-owners/246761/

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