Everything investors need to know about tax in 2020

The Australian tax system can be complex at the best of times, let alone in a year where there’s been a global pandemic. Last year the ATO reported 90 per cent of investment owners were making mistakes in their tax return, with loan interest, borrowing expenses, repairs and improvements amongst the most common confusing issues. Add the issue of COVID-19 to the mix and things are even trickier; tenants unable to pay their rent, wanting to defer their rent, or moving out of properties altogether, has meant many landlords have had to scramble to cover costs. But it’s not all bad news. If you manage your lodgement carefully this year, you’ll be able to take advantage of some of the tax breaks that are being offered.

Here’s what you need to know in order to maximise your tax return this year:

Deferred rental payments are tax free

As a landlord, you’re only obliged to pay tax on a rental income when the tenants actually pay the rent. As many landlords have agreed with tenants to delay their rental payments over the past few months, this means you don’t have to pay the tax on it until it’s in your bank account. However, if you have deferred loan repayments on your rental property, you can still claim the interest being charged on the loan as a deduction.

Reduced rental income can increase your tax return

If you’ve lost a tenant from your rental property or your tenants have been paying reduced rent since COVID hit, it’s not all bad news. Because you are paying more to keep the property, you’re making less of a profit, so this will reduce your taxable income.

An empty property isn’t a disaster

Concessions are also being made for short-term rentals; when bookings have been cancelled due to COVID-19 or bushfires, deductions are still available if the property was still available for rent.

Don’t immediately claim on repairs

If you’ve done any home improvements or renovations on your rental property – particularly if it’s been empty due to the pandemic - it’s tempting to claim these costs immediately. But many repairs are considered non-deductible as they are capital in nature. Instead you can claim depreciation on these expenses as a capital works deduction over 40 years.

There’s land tax relief

NSW, Victoria, South Australia and ACT are offering reductions of between 25 to 50 per cent on land tax, with some states including Victoria, Western Australia and Tasmania allowing deferred payment of any remaining land tax until between March and June 2021. Remember that if you claim a land tax reduction, you’ll have a lower tax deduction in total on the property.

Ask the professionals

In order to really maximise your claim, talk to someone in the know. EY TaxChat gives you the personalised advice of an EY tax professional, through the convenience of an app. Ideal for people such as investors with complex tax returns, all you have to do is answer a series of easy-to-understand questions, and share your documents. Because there are no appointments, you can do it all under your own steam, knowing you’ve got a tax professional on-hand whenever you need.

Learn more about EY TaxChat now.