How quickly does a year pass? It’s tax time again and, for many property investors, some of the costs of owning a rental can be claimed as a tax deduction. Your landlord insurance premium may be one of those expenses, but there are some provisos. Read on to find out more.
In the lead up to the end of the financial year, the Australian Taxation Office (ATO) lets taxpayers know its key priorities when assessing returns. This year, the ATO is looking at rental property income and deductions.
While many property investors will use a tax accountant who will be able to discuss the nitty-gritty as it applies to your specific circumstances, it’s a good idea to be aware of what expenses you may be able to legitimately claim as a deduction and what income you must declare. You will need evidence to back up your claims, so make sure you have your paperwork organised and ready.
Your accountant and the ATO offer detailed guidance but, in general, the costs landlords may be able to claim include expenses such as:
- advertising for tenants
- body corporate fees and charges
- council rates
- water charges
- land tax
- gardening and lawn mowing
- pest control
- interest expenses
- property agent's fees and commission
- repairs and maintenance
- some legal expenses
- borrowing expenses
- capital works expenditure.
Another expense that may be claimable is your landlord insurance premium because it may be classified as a business expense relating to the income-generating rental property. Landlords should seek professional advice about claiming, as there may be circumstances where the deduction is not permitted or where the full cost can’t be claimed (e.g. if the property is only rented out for part of the year). Like the other expenses, insurance can only be claimed if the property is actually being used as a rental. So be sure the property qualifies before claiming the deduction – or applying for or renewing a landlord insurance policy for that matter!
Let’s talk about ‘double dipping’
Double dipping is never a good idea – not at a party, and not when it comes to tax time or insurance. Landlords can’t look to make a ‘profit’ from an insurance claim. This means they can’t make a claim with their insurer and also claim the expense (loss) as a property-related tax deduction. The ATO considers this one of the three golden rules: “you must have spent the money yourself and weren’t reimbursed”. In insurance circles it’s known as the ‘f-word’ – fraud. It’s a sure-fire way to incur the wrath of both the insurer and the tax office.
On the flipside, landlords must be sure to provide the ATO with the details of all income they derive from the rental.
This income isn’t just the rent received. It may also include:
- payments received in the form of goods and services
- rental income from property owned overseas
- bond money you retain in place of rent or keep because of damage to the property
- letting and booking fees you retain when renters or holiday makers cancel a booking
- payments for deductible expenses, such as
- payments from a tenant to cover the cost of repairing property damage
- government rebates for buying a depreciating asset (e.g. a solar hot water system)
- money you receive from a relief fund in a disaster.
Importantly, rental income includes any insurance payout you have received. For example, if you made a claim for damage sustained from a natural disaster (e.g. bushfire, flood or cyclone) or if you received reimbursement for the loss of rent. This income must be declared, or you could wind up in hot water with the tax office.
A word about short-term rentals
The ATO requires taxpayers to declare all income they receive. This includes income from offering a property on a short-term basis such as Airbnb. So even if the owner isn’t a ‘landlord’ in the traditional sense, they need to declare income from such arrangements.
When it comes to both tax and insurance, meticulous record-keeping is a must. The ATO can ask for supporting documentation relating to any expense you claim and can verify income from all sources including your insurer. If you need to make a claim on your insurance, you will need to provide supporting evidence. Having excellent records makes this much easier and, if you can’t produce the documentation needed, you may find your claim is reduced or even denied.
So whether you’re looking to make the most of your tax deductions or making sure you have the evidence you need to support an insurance claim, being on top of your paperwork is crucial. Be sure to keep accurate records around rental income and keep all receipts for expenses incurred. But be sure to only claim what you are entitled to, whether it’s in your tax return or your insurance claim – and never the same expenses for both!
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 661 662 if you have any questions.