With the financial year end looming it is timely to highlight key issues residential property investors should be aware of and urge them to consult their accountant for advice.

INTEREST DEDUCTIBILITY

Despite all the publicity we have clients, mostly new investors, who are still unaware of the interest limitation rules and how deductibility works in general.

Unless you have purchased a “new build” property with a code compliance certificate issued on or after March 27, 2020, you will not be able to claim and offset 100 per cent of your loan interest against your rental income.

If you already owned rental properties prior to the law change on March 27, 2021, then you can still claim 75 per cent of the loan interest against your rental income for the 2023 financial year. And this loan will be subject to the phase-out provisions decreasing by 25 per cent every year until completely phased out from April 1, 2025.

On the other hand if you purchased a rental property after March 27, 2021 that is not a new build you will not be able to claim any loan interest in the 2023 financial year.

REFINANCING

Given the recent interest rate hikes, you may have refinanced and switched banks looking for better interest rates. This is where things could get tricky.

If you change banks or refinance up to the level of the original loan (as at March 27, 2021) you will still be able to claim interest subject to the above limitation and phase-out rules.

However, if you refinance for a bigger sum, then the interest may not be deductible as such debt would be considered “additional debt” even if it relates to the rental property.

This is also a good time to reiterate it is the purpose of the loan rather than the type of mortgage security offered that determines whether you can claim interest.

‘Despite all the publicity we have clients still unaware of the interest limitation rules’

BRIGHT-LINE PROFIT

Income tax depends on when you acquired your rental property; when capital profit was gained from properties sold within the earlier five-year bright-line test or the new 10-year test.

As such gains are taxable in the year the sale settles, and given we are so close to year end, you should weigh up the pros and cons over whether to accept a purchaser’s request to settle before March 31.

REVIEWING STRUCTURE

Even though March is a busy time for accountants, it is also an opportune time to have a “once over” with your advisers to ensure your current ownership structure is still fit for purpose. Some decisions are deadline specific.

For example, if you want to opt in or out as a look-through company in the 2024 financial year, you have to apply and elect by March 31, otherwise you have to wait until the 2025 financial year.

REPAIRS, MAINTENANCE

Property investors pay tax on a cash basis, meaning you don’t pay tax on any rent in arrears or claim a deduction unless you have paid the expenses before March 31.

For example, you may wish to pay the balance of the council rates before March or bring forward any repairs or maintenance jobs so the payments can be claimed in the 2023 year.

It is also a timely reminder that any low value assets that cost $1,000 or less can be expensed as a deduction outright rather than capitalised for depreciation.