For property investors, maintaining good records is more than just a routine task. When tax season arrives, it’s the key to saving time, reducing stress, and ensuring you can claim every dollar you’re entitled to.
With the Australian Tax Office (ATO) taking a closer look at rental property claims, meticulous and well-organised records are no longer just best practice—they are essential.
Last week, we explored the deductions available for property investors. In this second part of our tax time series, we’ll guide you on how to stay organised, save time, and protect yourself from potential audits by mastering your record-keeping.
Understanding Your Record-Keeping Obligations
As a landlord, you are required to keep detailed records of all income and expenses related to your investment property for a minimum of five years. In some instances, this period extends to five years after you sell the property.
Your records are the foundation of your tax return and your primary defence in an audit. They should comprehensively cover:
- Property Purchase: All documents related to the acquisition of your rental property.
- All Rental Income: This includes not just the weekly rent but also any funds received from rental bonds, letting fees, and booking fees.
- All Related Expenses: This encompasses costs associated with borrowing, property management, repairs and maintenance, and capital improvements.
Stay Organised and Stress-Free
A proactive approach to record-keeping throughout the financial year can make lodging your tax return a significantly less stressful experience. Here’s how you can stay on top of it:
- Lean on Your Property Manager: Your property manager at Holdsworth Real Estate will provide you with detailed end-of-financial-year statements, which are a cornerstone of your financial records.
- Go Digital: Paper receipts can fade, get lost, or deteriorate over time. Save digital copies of all your receipts and invoices to avoid the frantic search through shoeboxes at tax time. This also ensures you don’t miss out on any legitimate deductions.
- Utilise Technology: The ATO’s myDeductions tool, available via the ATO app, is an excellent way to keep track of your rental-related expenses and receipts on the go.
It’s crucial to understand that bank or credit card statements alone are generally not sufficient to substantiate your claims. The ATO requires written evidence for each expense that clearly shows the cost, purchase date, supplier’s name, the nature of the expense, and the date the document was produced. These records can be in paper or electronic format and may include invoices, receipts, spreadsheets, or agreements.
For more detailed information, visit: ato.gov.au/keepingrecords
The ATO’s Focus on Property Investors
The ATO is increasingly sophisticated in its approach, utilising data matching from banks, online rental platforms, and advanced AI algorithms to scrutinise tax returns. They have clearly indicated a tougher stance on property investors who fail to:
- Report all rental income accurately.
- Correctly differentiate between a repair and an improvement.
- Properly apportion deductions (for periods of personal use or when only part of the property is rented).
- Maintain thorough and accurate records.
By keeping meticulous records and having a clear understanding of your allowable deductions, you can significantly maximise your return and minimise the risk of an ATO review.
Quick Links for More Information
The ATO provides a range of valuable resources to assist property investors during tax time. For further information, visit ato.gov.au/realestate or explore these helpful links:
Disclaimer: This information is intended as a general guide only. For personalised advice on preparing your tax return, please consult with a registered tax agent or visit the official ATO website. Contact Holdsworth Real Estate today to find out more!