Investors poured into Sydney and Melbourne in record numbers during the real estate boom. And now it’s time for them to file their tax returns.

As with everything in real estate, the rules affecting tax often change and are usually up for debate. The federal budget in May included some tweaks to what investors can deduct at tax time.

For many new investors, this can be confronting – tax laws can be complicated to navigate and have increased in complexity, experts warn.2_gwmdom

Firstly, investors will be unable to make claims on their tax for travel to their investments from July 1 – even if the travel is for the legitimate purpose of collecting rent, maintaining or inspecting an investment premises. In the past, these expenses had been able to be deducted against a tax return.

The government is anticipated to gain $540 million from this change.

This means those wanting to claim travel costs for 2016/17 are still able to, but should expect extra scrutiny from the Australian Taxation Office about what is “reasonable”, VJR & Associates and Keshab Chartered Accountants accountant Jeremy Iannuzzelli said.

But what is considered reasonable is down to interpretation – claiming for “15 trips with your whole family” every year could be seen as excessive, Mr Iannuzzelli said, as an extreme example.

Another area where the ATO is watching carefully is the deductibility of interest on investment loans.

“If you’re topping up an investment loan and using it to offset your [home] loan then it isn’t deductible … the loan has to be used for investment purposes,” he said.

The government is also increasingly watching Airbnb hosts, who should also be careful to be accurate with their claims.

Landlords should be aware that interest can only be claimed when the property is available for rent, Terri Scheer Insurance executive manager Carolyn Parrella said.

If a property is lived in for half a year and leased out for the other half, interest repaid on the mortgage cannot be claimed for the full 12 months.

The federal government has also announced a change in the rules to the way investors can claim depreciation for “plant and equipment” in an investment property.

This technical term covers items that can be moved from the property, such as blinds, air conditioning units, ceiling fans and dishwashers.

Usually, investors had been able to add many items in a home to their depreciation schedule – which effectively made the contents of the property a tax write-off as items such as a dishwasher lose value over time.

Property Tax Specialists principal adviser Shukri Barbara said those who bought such items after May 9 would be able to claim depreciation deductions over the life of the asset, but subsequent owners cannot.

Mr Barbara said the effect of these changes would be minimal for most investors but would “hurt a bit for buyers of second hand investment properties” in the future.

This change is grandfathered – so it won’t affect the deductions for investors whose properties’ “plant and equipment” was in place before the cut-off date of May 9.

At the moment, there are more than 6000 “plant and equipment” items listed by the ATO, including smoke alarms, garbage bins and kitchen appliances, BMT Tax Depreciation chief executive Bradley Beer said.

Deductions for these items are made under a different category to structural elements of a home, and it’s here where novice investors can trip up, he said.

“For example, some investors mistakenly assess carpet as a permanently fixed asset rather than a removable asset.”

For carpeting costing $3650, this could be the difference between receiving $91 in the current tax return – and more in future returns – or $730 in the first financial year.

End of financial year: what you need to know

July 1, 2016 to June 30, 2017 – Tax year 2016/17

May 9, 2017 – “Plant and equipment” proposed cut off date

July 1, 2017 – Travel expenses cut off date

October 31, 2017 – Lodgment deadline (some tax agents may be able to file after this)

Expenses you may be able to claim:

  • Advertising for tenants
  • Body corporate fees and charges
  • Council rates
  • Water charges
  • Land tax
  • Cleaning
  • Gardening and lawn mowing
  • Pest control
  • Insurance (building, contents, public liability)
  • Agent fees and commissions

Source: ATO