There is light at the end of the tunnel for residential property investors who have been hit hard by the impact of the global COVID-19 health pandemic.
Tax specialists around Australia say they have seen an increase in the number of inquiries from property investors preparing for an increased number of tax deductions to help lessen the blow of reduced rental income from the coronavirus shutdown.
Residential and commercial investors are readying to maximise negative gearing and deductions for property expenses in the four-week lead-up to lodging their returns on July 1.
According to investment bank Morgan Stanley more than 1.5 million Australian households own one investment property and a further 600,000 own between two and six properties.
But it is the former who are being hit hardest by the impact of the pandemic with their rental income being reduced by falling rents, tenants under deferred payment plans, or travel restrictions which are impacting demand for short-term rental properties.
In turn, this is putting pressure on investors’ ability to repay mortgages. What has made the situation worse is that despite federal government pleas for negotiated agreements between owners and renters, many insurers have refused to cover any shortfall.
As a property owner/investor, making the most from your investment makes good financial sense. Property depreciation is often overlooked by investors, resulting in a loss of taxation benefits to you as the owner.
Mitchell Brandtman associate Tass Assarapin says depreciation should always be looked at as a form of deduction. Assarapin says there are few additional depreciation benefits that property investors can rely on as a result of coronavirus but there are still deductions that may be applicable.
“Brand new apartments, or items purchased by the owner (in terms of depreciation) obtain more depreciation than older apartments (or second hand owners) as you are able to depreciate items such as lifts, appliances and certain floor and window coverings,” Assarapin says.
To help you determine this depreciation, Smarter Communities clients have access to reputable Quantity Surveyors, Mitchell Brandtman, at a significant discount.
But in a recent interview with Smart Property Investment, ATO assistant commissioner Adam O’Grady claimed the tax office is working hard to alleviate investor worries by offering extensions to lodge tax returns, low-interest payment plans to help pay existing and ongoing tax liabilities or access to instalments investors may already have paid.
O’Grady told the site that should tenants stop paying rent or be paying less rent due to the direct effects of COVID-19, investors would still be able to claim their normal expenses for the investment property in their tax return with no apportionment necessary.
It is also worth remembering that when tenants are able to return to paying the full weekly rent, which may also include some back payments, this should be included as income in the year it was received.
“Depending on the agreement you have made with the tenant about repaying the back rent (rent in arrears) this may take substantial time and may need to be declared over multiple years. If you get an insurance payout for loss of rent, you should include this as rental income in the year it was received,” O’Grady says.
Short-term rentals are also impacted with restrictions on travelling and social distancing. According to O’Grady, what you can still claim and how you apportion your deductions depend on how you were using the property before the pandemic hit and how you were planning on using it during the COVID-19 period.
“This usage and intended usage will impact how you apportion expenses between when the property was available for rent and when it was used for private purposes.
“If you are using the property yourself or providing it to friends or family to self-isolate, this will increase your private usage of the property and reduce the deductions you can claim. If you had started to use the property in a different way than before COVID-19, the proportion of expenses you can claim as a deduction may change.”
To find out more about the tax implications of COVID-19, O’Grady recommends heading to the ATO website.