The tax office is keeping expenditure on rental properties under the microscope. Here’s how to avoid being tripped up.
June 30 is near, which means it’s time to think about tax. The tax rates change on 1 July so, if appropriate, try to ensure expenditure is incurred before June 30 to maximise your tax deductions for the current year. Ways to do this include prepaying 12 months’ interest in advance on investment loans, and carrying out necessary repairs and maintenance sooner rather than later.
For example, if the house needed painting when you bought it, the costs of re-painting it could not be deducted from that year’s taxable income. However, as usual, there are anomalies. The tax office considered that underpinning a building due to subsidence was a capital improvement but pulling up the carpet and polishing the floorboards was an immediate deduction.
Another danger is that our tax system works on self-assessment. This means the Tax Office no longer checks your return, but relies on your honesty. Now, instead of giving all tax returns a cursory check, they select a sample for a detailed audit every year.
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