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In the wake of COVID-19, some landlords and property investors may face tax issues they haven’t in the past, and should seek the advice of a tax agent, says one peak body.
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Property investors urged to seek tax advice amid COVID-19
29 June 2021
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CPA Australia warned property investors and landlords to turn to their tax agents this tax time as varying challenges, spanning rent moratoriums and mortgage repayment holidays, may mount a challenge in the face of their claims this financial year.
More than 2.2 million taxpayers reported rental income on their 2018–19 tax returns, said Elinor Kasapidis, senior manager of tax policy at CPA Australia. Ms Kasapidis said that they should be aware that lost rental income can’t be claimed as a tax deduction.
“Many landlords lost rental income due to moratoriums, border closures and COVID restrictions,” Ms Kasapidis said. “Unfortunately, lost rental income can’t be claimed as a tax deduction and must be copped on the chin.
“The good news is, if you reduced the rent to enable your tenants to stay in the property, this doesn’t reduce your deductions for rental property expenses.”
Ms Kasapidis said that those who received back payments or insurance payouts for lost rent will need to report them in their tax returns, but can otherwise claim payments like interest on deferred loans as a deduction.
“A fortunate few landlords received back payments or insurance payouts for lost rent. These are assessable income and must be reported in your tax return,” Ms Kasapidis said.
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“Some property investors experienced financial difficulty making their mortgage payments and took up their bank’s offer of a repayment holiday. Interest on deferred loan payments can be deducted.”
Ms Kasapidis said that an investor may otherwise be affected by changes to property management fees and advertising during COVID, which she said add to a state of COVID-induced tax uncertainty for property investors off the back of recent changes.
“Landlords can no longer claim travel deductions relating to inspecting, maintaining or collecting rent from their investment property,” Ms Kasapidis said. “For properties acquired from 9 May 2017, landlords can no longer depreciate assets that were in the property at the time of purchase.
“From July 2019, many investors can no longer claim deductions for vacant land, including while constructing or substantially renovating residential premises.
“If your business use of the land was suspended due to COVID restrictions, you may still be able to claim a deduction if the land remained available for use during this period.”
Australian taxpayers will also need to report foreign property investments in their Australian tax returns, Ms Kasapidis said. She warned that the ATO has data-sharing agreements with foreign tax agencies.
“The ATO has information exchange agreements in place with foreign tax agencies,” she said. “So, they’re receiving data on your overseas investments and income, too.
“The property market is also running red hot in other countries. If you sold property overseas, it’s likely you made a reportable capital gain.”
The ATO’s foreign data-sharing agreements have been bolstered by a broader pool of domestically acquired property data, too. The Tax Office will have new access to property management-related data and rental bond data for millions of people.
“The ATO can see around corners when it comes to undeclared investment property income and capital gains,” Ms Kasapidis said.
“It’s perfectly understandable that COVID may have changed your investment property deductions and expenses; just make sure you have the records to back up your claims.”
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