You’re a real estate professional, but you might not know what your tax obligations are. If you want to be up-to-date on the latest laws that affect your profession, then this blog post is for you! In addition, we’ll share some deductions and expenses that can help lower your taxes, so keep reading.
Before you know it, each year, tax season rolls around again. But don’t despair! It’s a great time of year – if you know how to make the most of it. And our expert tax consultants know how to get the very best results from your tax return.
The important thing is to work out all the expenses and deductions that relate to costs you’ve incurred in your job as a property manager or salesperson so that you can get the highest possible refund.
As a real estate professional, you will most likely get an income statement that will outline all of your salary, wages, allowances and bonuses for the financial year, which is the starting point for your return. Next, come the deductions:
Can I claim any deductions?
You can claim deductions on any money spent on products or services directly related to earning your income during the financial year. You need to have spent the money yourself (your employer can’t have reimbursed it), and you need to keep a record of the expense, such as a receipt or invoice.
What tax deductions can I claim?
There is a wide range of deductions you can claim when you work in real estates, such as:
- The cost of advertising (for example, through newspapers, letterbox drops, signage and bunting). You can’t claim a deduction for the cost of advertising if you earn your income from a fixed salary, and you aren’t entitled to earn a commission.
- Car expenses if you need to drive for work-related reasons such as attending open houses or inspections or travelling between different offices owned by your employer (such as between your regular office and the head office to attend meetings)
- The cost of purchasing, repairing and cleaning work clothing if it’s a compulsory uniform that identifies you as working for your employer (for example, if it has a logo)
- Gifts such as hampers, flowers or a bottle of alcohol if they are bought for work purposes (for example, for a client), and you’re a salesperson or property manager who receives a commission
- The work-related portion of any marketing equipment you use, such as a digital camera used for taking photos of properties
- Self-education, training or conferences directly related to your line of work, such as a real estate agent licence or certificate
What can’t I claim?
There are several key expenses you can’t claim, including:
- Any entertainment such as taking prospective clients to dinner, sporting events or concerts (even if you discuss business when you’re there)
- Any tools or equipment, such as a laptop or camera, if your employer provides it
- Self-education and training are not directly related to your line of work and are intended to help you transition to a different career in the future, such as a law degree.
- Office clothing such as a business suit or comfortable shs, even if you only wear them to work
What records do I need to keep?
Record keeping is important, and it’s a good idea to create an easy and reliable system to help you keep on top of this throughout the year.
You don’t need to keep physical receipts, and it’s acceptable to keep a digital copy (such as a photo of a receipt or an email receipt) provided it is possible to read:
- The name of the supplier
- Amount of the expense
- Nature of the goods or services
- Date the expense was paid
- Date of the document
You also don’t need to keep receipts for expenses under $10 (as long as these don’t cumulatively come to more than $200).
What happens if I make a mistake in my tax return?
You must take great care in putting together the information and supporting documentation when filing your tax return and only genuine claim deductions to avoid penalties and possibly even prosecution from the ATO.
But we all make innocent mistakes sometimes, and if you realise you’ve submitted any incorrect or unsubstantiated claims, then you should contact your accountant immediately. They will assist you in making the necessary amendments.
Real Estate Tax Tips
Real estate taxes can be overwhelming, with multiple forms and confusing numbers. This blog post will give you a few tips and tricks to make sure you’re not overpaying on your real estate tax!
The status of your property can determine your tax concessions
Before you file your taxes, understand the status of the properties in your portfolio. If you’re not currently renting your property to anyone, ask yourself – is your property available for rent? As this can impact how tax affects it.
Consider the following:
- Do you have and are you showing a clear intention to rent the property?
- Are you advertising your property?
- Is it set in line with all the other properties in the area?
- Are your rental conditions reasonable?
If your answers to these questions are all “yes,” then you may be able to claim a deduction for your rental property. Just remember to always prepare the supporting documents for your claim or speak to your accountant.
Make sure all repairs, improvements, and construction costs are recorded properly
Keep track of all the expenses and investments you’ve made on each of your properties, as these may allow for some tax dedications.
For instance, did you know that you can claim a 2.5% deduction of the construction costs for 40 years from the date when the construction was completed? So, if you paid for initial repair after purchasing a property or had to fix damages that resulted from renting out your property, you can claim deductions for the cost.
If the previous owner claimed capital deductions for the construction of your new property, you could ask them to provide these details so you can calculate the deductions that you’re entitled to claim. You may also ask for a professional’s help to estimate the construction costs for you.
All building costs such as extensions, alterations and structural improvements can also qualify for capital works deductions, so be sure to keep your receipts for all these expenses.
Take note of your capital gains and losses
Your capital gains or losses refer to the difference in dollar value between when you bought and improved property and what you receive upon selling that property. When preparing your tax income return, it is important to get these values right as these records affect your deductions.
If you make a capital gain, you must include the gain in the income year that it was acquired. On the other hand, a capital loss can be carried forward and be deducted from capital gains in later years.
As you invest in properties, you must ensure that you are being tax-smart and all the gains and losses are recorded properly – this will make tax times easier for you.
Organise your records
Whether you’re a buyer, an owner or a seller, keeping a detailed record of all your income and expenses is a crucial step in preparing for the end of a financial year.
Keeping your documents organised during the entire year instead of trying to source them all when tax time approaches can be stressful, and you may even miss some.
Try scanning all transaction receipts so you can keep them in one place – this includes all your loan documents, contracts of purchase and sale, and all other expenses.
It doesn’t matter if you use a simple spreadsheet or professional software; what matters is that you have everything prepared. This way, you can avoid the struggle of collecting everything during tax times.
Top 12 forgotten ATO real estate tax deductions
An analysis of Australian Taxation Office (ATO) data revealed that real estate agents claim an annual average of $8,634 in real estate tax deductions. This is triple the national average of $3,413 and ten times that of shop assistants.
There are obvious deductions for work-related travel, advertising, mobile phone, licencing, and home office expenses as a real estate agent. However, many more deductions are commonly overlooked. To help maximise your tax return, we’ve compiled a list of the top 12 forgotten ATO real estate tax deductions:
1. Gifts and greeting cards
If you’re an agent or property manager who is entitled to earn a commission, you can claim a deduction for gifts and greeting cards that you’ve purchased for work purposes, i.e. for your tenants, owners and suppliers.
These gifts may include hampers, bottles of wine and whisky, gift vouchers, perfume, flowers and pen sets. Unfortunately, you cannot claim entertainment gifts such as tickets to the theatre, movies, plays, sporting events, amusement centres or holiday vouchers.
2. Property presentation costs
If you’ve spent money getting a property ready for an open home and haven’t been reimbursed by your employer, you can claim a deduction on property presentation costs. This includes costs associated with cleaning the property and purchasing decorative elements such as flowers and plants.
3. Advertising costs
Similarly, you can claim a real estate tax deduction for your advertising costs, but only if you’re an agent or property manager who is entitled to earn a commission and your employer hasn’t already reimbursed you. This includes costs associated with advertising through newspapers, letterbox drops, signage and bunting.
4. Marketing equipment
As a real estate agent, you can claim a deduction on the work-related portion of any marketing equipment used or purchased in the last financial year. This includes drones, professional cameras and virtual reality goggles used for work, and any repair costs associated with those items.
If you spent $300 or less on a piece of marketing equipment and used it for work only, you can claim the full cost of the item. However, if the item was more than $300, you can claim a depreciation deduction.
5. Tax agent fees
Did you use a registered tax agent or online service to prepare and lodge your tax return last year?
If so, you can claim the fees you paid in section D10 (cost of managing tax affairs) of your tax return. Additionally, if you meet with a recognised tax advisor, you can claim the fees charged and the associated travel expenses.
6. Handbags, satchels and briefcases
You can claim a deduction on your handbag, suitcase or briefcase if you use it to carry work-related items such as laptops, iPads, documents and stationery to and from work. However, it must be used primarily for work and should be a reasonable amount of your business revenue.
If you use your handbag, suitcase or briefcase outside of work, the ATO recommends you keep a log of when you use it privately versus when you use it professionally. Then, come tax time; this will help you calculate the tax-deductible portion.
7. Self-education expenses
Self-education is often overlooked when it comes to real estate tax deductions. If you’re studying a work-related course that leads to a formal qualification, you can deduct a portion of the course fees.
The ATO states that the course must “maintain or improve specific skills or knowledge you require in your current employment”. This means you can take a course on marketing to learn how to grow your rent roll or enrol in a real estate photography class. As long as you can prove that the training will help you expand your real estate business or career, it’s likely you can claim it.
8. Subscriptions to industry publications and newspapers
One of the most commonly forgotten real estate tax deductions is subscriptions to industry publications and newspapers. As a rule of thumb, the content of the subscriptions must be connected to the duties carried out by you as a real estate agent. For example, you can claim on real estate publications like Elite Agent, Your Investment Property, AFR Weekend or newspapers that have property sections.
However, suppose the newspaper’s property section only appears in the Monday, Wednesday, and Friday issues. In that case, you can only claim a tax deduction for those issues rather than for the entire subscription.
9. Clothing, laundry and dry cleaning
If you’re required to wear clothing that is unique and distinctive to your real estate office, you can claim on the purchase and upkeep of those items of clothing. This might include blouses, pants, shirts, jumpers, dresses and skirts that have your office’s logo on them or even distinctive shoes, socks and stockings that are specified in your office’s uniform policy.
You must provide written evidence of your clothing purchases and laundry and dry cleaning expenses to claim a deduction. It’s also likely that you’re able to claim mending and alteration costs for those items of clothing.
If you’ve donated $2 or more to an approved organisation or registered political party in the last financial year, you may be able to claim it as a tax deduction. Your donation receipt should indicate whether or not it’s tax-deductible. Additionally, you can claim a deduction if you’ve made a net contribution of more than $150 to an approved organisation for a fundraising event.
Note that you cannot claim a deduction for a donation if you’ve received something in return. For example, if you received raffle tickets or novelty items in exchange for a donation.
11. Home office and WFH expenses
If you work from home (WFH), you may be able to claim a percentage of the running costs of your home office. This includes things such as:
- Depreciation of equipment or furniture
- Work-related phone calls
- Printer paper, ink and stationery
- Internet access charges
- Electricity for heating, cooling and lighting costs
Like purchasing marketing equipment, if you purchased any home office equipment or furniture for work purposes, you could claim a deduction. In addition, if your equipment costs more than $300, you can claim a depreciation deduction.
Many companies worldwide rolled out work from home policies at the beginning of March in response to the COVID-19 pandemic. If this applies to you, you can claim a deduction for your work from home expenses during tax time.
To help you out, the Australian Government issued an expenses calculator to make this process easier. In addition, the temporary shortcut method allows Australians who worked from home from 1 March 2020 to 30 June 2020 to claim a deduction of 80 cents for each hour worked from home, with minimal record-keeping requirements. Note that those who use this method cannot claim any other expenses for working from home.
12. Car expenses
If you use your car for work purposes, there are a few expenses that you can claim:
- Perform your work duties
- Attend work-related conferences or meetings away from your normal workplace
- Drive between separate jobs on the same day, e.g. travelling from your real estate agency to your second job
- Drive to and from an alternate workplace for the same employer on the same day, e.g. travelling between two different residential open homes
- Perform itinerant work—meaning you had shifting places of employment, e.g. you regularly worked at more than one site each day before returning home.