- Short term rentals may be eligible for deductions
- Deductions might also be made due to ban on rental evictions
- Sellers must remember capital gains tax could apply
It’s that time of the year again, EOFY (end of the financial year).
EOFY heralds many things, not least – in recent years – strange marketing campaigns.
When it comes to your house or investment property, what does working from home or rental moratoriums mean for your tax return?
Working from home
While people have trickled back into offices around Australia, Australian Taxation Office (ATO) Assistant Commissioner Tim Loh said that “even with people shifting back to the office, we know many Australians have opted to continue working from home at least one day a week.”
The temporary shortcut method that was created last year is still in place.
“The only proof you need is a record of the number of hours you’ve worked from home, such as a timesheet.”
Tim Loh, Assistant Commissioner, ATO
ATO said, “The temporary shortcut method can be claimed by multiple people living under the same roof and, unlike existing methods, does not require a dedicated work area.”
Three different methods are available for the financial year 2020-2021, the ATO said you can:
- “Claim a rate of 80 cents per work hour at home for all your working from home expenses;”
- “Claim a rate of 52 cents per work hour at home for the heating, cooling, lighting and cleaning of your dedicated work area and the decline in value of office furniture and furnishings. Then calculate the work-related portion of your telephone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device,” or
- “Claim the actual work-related portion of all your running expenses, which needs to be calculated on a reasonable basis.”
There are however four expenses that cannot be claimed, including personal expenses for items like coffee, tea, and lavatory paper; “expenses relating to your child’s education”; large expenses up-front, and, generally, occupancy expenses.
Short term rentals
For individuals renting out holiday homes, and the like, who were affected by reduced income due to Covid, it may be possible to claim tax deductions.
ATO said, “If your ability to rent your property has been affected and nothing else changes, you can continue to deduct expenses, based on how you used the property in the equivalent period in earlier years.”
Of course, if the short-term rental has been used by the owner, that period cannot be claimed.
How the property was used prior to Covid, and how it was planned to be used during Covid are factors that can affect whether a claim for deduction can be made.
ATO provides the following example:
“Jim uses his holiday home privately for himself and his family to isolate during COVID-19. He can’t claim deductions for the property for this period. Jim’s private usage of the property will increase and reduce the deductions he can claim.”
Australian Taxation Office
Importantly, the ATO said “To claim deductions for periods when your property is vacant you must show that your property is available for rent.”
That will not be the sole factor that determines deductions, “If you made a reasonable commercial decision to temporarily stop or reduce advertising for your property during a COVID-19 lockdown, you may still be able to claim deductions for this period.”
How do rental moratoriums affect my taxes?
Covid threw up a veritable smorgasbord of situations to deal with and the rental moratorium was one.
CPA Australia’s Elinor Kasapidis told The Property Tribune, “Investors who lost income as a result of COVID-19 (including because of rental moratoriums) can still claim their expenses including interest. This may create losses for some investors which can be applied against other assessable income or carried forward to future years.”
Additionally, the ATO said deductions in a tax return can be claimed “if your tenants can’t pay their rent under the lease agreement because their income has been affected by COVID-19 and:
- you received less rental income as a result
- you continue to incur normal expenses on the property.”
“You can also claim deductions if you reduced your tenants’ rent to allow them to stay in the property due to COVID-19 for commercial, arm’s-length reasons.”
Australian Taxation Office
Ms Kasapidis and the ATO both made a reminder that if a back payment of rent or insurance payment for lost rental income is received, such monies should be declared as assessable income in the tax year it was received.
CPA Australia’s Ms Kasapidis also said:
“You can claim deductions against the rental income from your investment property but make sure you adjust for any changes to the use of the property.
“For example, if you stayed at the property during a COVID-lockdown, you can’t claim losses or deductions for the period it wasn’t available to rent.
“You can’t claim travel expenses to check on your property. From 9 May 2017, depreciation is not available for assets that were in an investment property at the time it was purchased.”
Elinor Kasapidas, CPA Australia
The red hot market also means those relishing in the excellent sales prices will have to pay careful attention to capital gains tax.
“Be aware of the capital gains tax implications of selling your investment property. Ensure that you keep good records of your capital expenses to claim against any capital gain.”
Elinor Kasapidis, CPA Australia
Ms Kasapidis told The Property Tribune, “JobKeeper, cash flow boost and other payments are treated the same way for commercial property owners or tenants as for other businesses.”
“The expenses incurred by commercial property owners continue to be deductible. These may generate a loss if the tenant has ceased paying rent but was protected from eviction as a result of a moratorium. Some government grants were available to support commercial landlords and owners should check the specific tax treatment of these payments.”