EOFY Tax season can be daunting for landlords. With the right strategies, you can maximize returns and stay compliant. Here are the top 20 tax tips for Victorian landlords for the 2023/2024 financial year.
For personalized advice, visit First National Real Estate Melton. Our expert team is ready to help you make the most of your investment properties.
1. Maximize Your Deductions: Claim Every Expense!
Understanding deductible expenses is crucial for landlords. Here’s how you can save:
- Property Management Fees: Fully deductible, covering rent collection, tenant communication, and maintenance.
- Maintenance and Repairs: Keep your property in top shape and claim costs for fixing leaks, repainting, or replacing windows.
- Asset Depreciation: Save thousands by depreciating appliances, furniture, and structural elements over their useful life. A professional depreciation schedule can help you claim the maximum amount possible.
2. Deduct Management Fees
Hiring a property manager can save you time and stress, and their fees are tax-deductible. This includes:
- Rent collection
- Tenant communication
- Maintenance coordination
- Advertising & Marketing Costs
3. Claim Maintenance and Repairs
Regular upkeep keeps your property attractive and maintains its value. Deductible expenses include:
- Fixing leaks
- Repainting
- Replacing broken windows
- Safety & Compliance Checks
We only use the best tradespersons here at First National Real Estate Melton. For the best home maintenance we recommend Pete's Maintenance 0418 548 208 or Visit Petes Maintenance here
4. Leverage Depreciation
Depreciation allows you to deduct the decline in value of your property and its contents over time:
- Capital Works Deductions: Structural improvements
- Plant and Equipment Depreciation: Removable assets like appliances and furniture
5. Council Rates Deduction
Council rates are a necessary expense for property owners, covering services like waste collection and road maintenance. These rates are deductible for rental properties. Need more information about land valuations for your property? Contact City of Melton Council on 03 9747 7200.
6. Water Charges Deduction
Water charges, including usage and service fees, are deductible if you pay the water bills for your tenants as part of the rental agreement.
7. Insure and Deduct
Landlord insurance premiums are fully deductible. Protect your investment and reduce taxable income simultaneously. We love PIP Landlord Insurance 1300 307 072 Get covered with PIP here and Terry Scheer Landlord Insurance 1800 804 016 Let Terri Scheer cover you here for good quality policies to protect our Landlords.
8. Deduct Cleaning Costs
Cleaning costs, whether for preparing your property for new tenants or maintaining it for current tenants, are deductible. This includes:
- Professional cleaning services
- Cleaning supplies
- Carpet cleaning
9. Deduct Legal Fees
Legal fees related to your rental property, such as lease agreements or disputes, are deductible. Keep all invoices and receipts to support your claims.
10. Pest Control Deduction
Pest control services are deductible, whether it’s a one-time extermination or regular maintenance. We recommend Buganator Pest Control as our local supplier in the City of Melton and surrounds. Call Matt 0404 804 704. Visit Bugantor here
11. Stay Updated on Land Tax Changes
From January 2024, the tax-free threshold for land tax will be reduced to $50,000. Higher landholdings will see increased charges. Plan ahead to avoid a big hit on your cash flow.
12. Interest Deductibility Changes
New rules limit interest deductions on rental loans. Review and restructure your financing to maximize savings under the updated laws from July 2023.
13. Capital Gains Tax Planning
The CGT annual exempt amount has been reduced. Timing property sales and understanding your CGT obligations can save you money.
14. Use a Professional Depreciation Schedule
A professional depreciation schedule ensures you capture all eligible deductions, giving you significant annual tax savings. We recommend BMT Tax Depreciation 1300 728 726
15. Offset Depreciation
Use offsetting depreciation for both capital works and plant and equipment. This dual approach can further reduce your taxable income.
16. Short-term Rentals Tax Benefits
Platforms like Airbnb can offer higher yields but come with unique tax implications. Deduct advertising fees, guest amenities, and higher turnover costs.
17. Renovation Deductions
Some renovations can be claimed as immediate deductions, while others need to be depreciated. Know the difference to maximize tax benefits.
18. Prepare for Windfall Gains Tax
If your property has been rezoned, prepare for the Windfall Gains Tax. Significant tax rates apply on value uplifts from July 2023. Important update for Urban Growth Boundary residents.
19. Document Every Expense
Keep detailed records of all expenses, including repairs, insurance, and legal costs. Organized records ensure you maximize deductions and minimize taxable income.
20. Stay ATO Compliant
Comply with ATO requirements by lodging BAS on time and accurately reporting rental income. Avoid penalties and keep your finances in check. Visit the ATO website for more information here: https://www.ato.gov.au/forms-and-instructions/rental-properties-2024
Expenses for which you can't claim deductions include:
- expenses not incurred by you, such as water or electricity usage charges borne by your tenants
- expenses where your property (including your holiday home) was not genuinely available for rent
- expenses that don't relate to the rental of a property, for example
- expenses you incur for your own use of a holiday home that you rent out for part of the year
- costs of maintaining a non-income producing property used as collateral for the investment loan
- expenses that relate to holding vacant land
- the cost of certain second-hand depreciating assets
- acquisition and disposal costs of the property
- travel expenses to inspect a property before you buy it and, in certain circumstances, when you own the property
- expenses incurred in relocating assets between rental properties prior to renting
- expenses for rental seminars about helping you find a rental property to invest in.
Upcoming Tax Changes in 2025
The tax landscape for landlords is set to undergo significant changes in 2025. Understanding these changes will be crucial for effective tax planning and ensuring compliance.
Better Targeted Superannuation Concessions
Changes to superannuation laws will impact how landlords manage their super funds. These changes are aimed at making superannuation concessions more targeted and equitable. Key points include:
- Contribution Limits: Adjustments to the concessional and non-concessional contribution caps, which could affect how much you can contribute to your super fund each year.
- Taxation of Contributions: Changes to the tax rates applied to superannuation contributions, potentially increasing the tax burden on higher contributions.
- Withdrawal Rules: Modifications to the rules governing when and how superannuation can be accessed, which may impact retirement planning for landlords.
Foreign Investment Fee Adjustments
New fees for foreign investors will be introduced, affecting landlords with overseas investments. These changes aim to ensure that foreign investors contribute fairly to the Australian economy. Key points include:
- Application Fees: Increased fees for applications to purchase residential property, agricultural land, or commercial property.
- Annual Vacancy Fees: Higher annual fees for foreign-owned properties that are not occupied or rented out.
- Compliance and Penalties: Stricter compliance requirements and higher penalties for breaches of foreign investment rules.
Interest Deduction Limits
Further restrictions on interest deductions for rental properties will require landlords to review their financing strategies. These changes are designed to limit excessive interest deductions and ensure fair tax treatment. Key points include:
- Deductibility Caps: Introduction of caps on the amount of interest that can be deducted for rental property loans, potentially reducing the overall tax benefit.
- Loan Purpose Segregation: Requirement to clearly segregate loans used for rental property expenses from those used for personal purposes, with non-compliant interest not being deductible.
- Record-Keeping Requirements: Enhanced record-keeping requirements to substantiate interest deduction claims, necessitating meticulous documentation of loan usage.
Additional Land Tax Changes in Victoria for 2025 and Beyond
Significant changes to land tax regulations will take effect from 2025, impacting property owners across Victoria. Here are the key updates:
Expansion of Vacant Residential Land Tax (VRLT)
From January 2025, the VRLT will be expanded to cover all vacant residential land across Victoria. Previously, this tax primarily applied to properties within 16 inner-metro Melbourne areas that were unoccupied for more than six months a year. Key points include:
- Broader Coverage: All residential land in Victoria that remains vacant for over six months will be subject to VRLT.
- Increased Revenue: This change aims to encourage property owners to either develop their land or make it available for occupancy to increase housing supply and generate additional tax revenue.
Inclusion of Unimproved Land
Starting from January 2026, the definition of residential land for VRLT purposes will be broadened to include unimproved land that has remained undeveloped for at least five years in metropolitan Melbourne. Key points include:
- Targeting Land Banking: This measure targets landowners who hold onto undeveloped land without making efforts to develop it, thereby addressing land banking practices and promoting housing development.
- Higher Tax Rates: Unimproved land will be subject to higher tax rates to incentivize development and utilization.
New Exemptions and Amendments
Several new exemptions and amendments will be introduced to make the VRLT more equitable and targeted. Key points include:
- Holiday Home Exemptions: From January 2025, the holiday home exemption will be revised to allow the usage and occupancy requirement to be met by a relative of the owner or vested beneficiary.
- New Residential Premises Exemption: An exemption period of up to three years will be introduced for new residential premises if the owner has made genuine efforts to sell the land. After this period, if the property remains unsold and unoccupied, it will be liable for VRLT at a rate of 1% annually until sold.
- Contiguous Land Exemptions: From 2026, unimproved residential land contiguous to a principal place of residence and enhancing its use (e.g., as a tennis court or garden) will be exempt from VRLT, though it will still be liable for normal land tax.
Changes in Reporting Requirements
The frequency of reporting for foreign purchaser additional duty exemptions and absentee owner surcharge exemptions will be changed from every six months to annually. This adjustment aims to streamline compliance and administrative processes, making it easier for property owners to meet their obligations.
Staying ahead of tax changes and understanding all possible deductions is crucial for maximizing your returns as a Residential Rental Provider. At First National Real Estate Melton, our experienced and local team is here to guide you through the complexities of property investment and tax compliance. Contact us today to learn more about how we can help you make the most of your rental properties.
Ready to maximize your tax savings and simplify your property management? Contact First National Real Estate Melton today! Call Jade Carberry 0424 929 727.
Please note that this is not financial advice and you should obtain your own financial advice from a Licenced professional before making any investment or financial decisions. We recommend visiting Complete ATO Rental Property Guide to Tax 2024 for more detailed information.