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The lockdown economy has held its fair share of trials and tribulations for homeowners, landlords, and tenants alike, with the challenges surrounding virtual property inspections being the veritable tip of the iceberg.
Owners and investors across Australia are seeking answers surrounding how the ongoing pandemic will impact their next tax return, and rightly so.
With the introduction of the government's rent relief scheme and loan providers offering deferred payments in the face of the pandemic, there may be some distinct alterations to your coming tax return.
Here are just a few things to consider when consulting with your accountant regarding your 2020-2021 tax deductions.
Interest on loans and other approved tax deductions
A strong silver lining to keep in mind is that the COVID-19 pandemic will in no way impact rental property depreciation schedules. Any rental providers that have pre-established depreciation schedules for their rental properties won't have to revisit these schedules when organising their tax returns.
What they may have to revisit, however, is the breakdown of their recorded rental income (in the case of rent payment delays or rent relief, though more on this later), as well as their recorded loan and interest payments made on the property over the financial year.
As many loan providers have deferred loan repayments in the face of the pandemic, you will likely have a little less to pay this year and a touch more over next year.
What won't change, however, is the interest on those loans, which is eligible to be deducted from your 2020-2021 tax return as it normally would be. It's worth arranging an appointment with your accountant to ensure that your tax return reflects just the interest on your loan if you've chosen to defer your home loan repayments.
As for your rental income, payments should be included in accordance with the time that they were received. If you've offered your tenants the option to defer rental payments, any payments made after the end of the financial year should be included in the next year's tax return rather than this current year's return.
Any insurance payments that cover losses of rental income should, however, be included in the tax returns for the years in which they were provided.
Claiming for periods of vacancy during lockdown
It's reasonable for rental providers to expect compensation for long periods of vacancy that can be directly attributed to the pandemic.
If you're a landlord that has been struggling to secure new tenants due to lockdown restrictions, you are eligible to claim back the costs associated with advertising your property.
If you decide to temporarily stop advertising your property on rent or remove the property from the rental market, you may still be eligible to claim back costs associated with your property's prolonged vacancy.
You may have to prove, however, that the likelihood of securing tenants for your property would be low for the period where you decided to stop advertising the property or remove it from property listings.
Owners of short-term rental properties like student accommodation or holiday homes (including AirBnBs) are eligible to deduct expenses surrounding advertising of the property, as well as property upkeep and maintenance.
If owners decide to reside in the property during the pandemic or opt to take the property entirely off-market, this may further limit the expenses that are eligible to be deducted. These same principles apply to traditional residential rental properties as well.
Navigating rent relief and reductions
Rent relief is offered to residential tenants as well as commercial tenants and landlords.
Naturally, there are some key differences between eligibility for these payments. For COVID-19 rent relief, tenants will have to fulfil a selection of criteria, including having lost income as a result of the pandemic, as well as having less than $2000 in savings amongst other criteria.
Contrary to this, the Commercial Tenancy Relief Scheme is open to a larger number of applicants, being available to any commercial tenants with a turnover of less than $50 million but have experienced a fall in turnover of more than 30 per cent over the course of the pandemic.
Even if commercial tenants aren't eligible to receive the Commercial Tenancy Relief Scheme, they can still organise formal negotiations with their landlords to seek waivers on rent or deferred rental payments.
Commercial landlords are also eligible to receive tax relief by the federal government in return for waiving or reducing rent for their tenants over the course of the pandemic.
Aside from these minor alterations, your rental expenses and tax returns should not be subject to much other change, even in extended lockdowns.
As the circumstances surrounding lockdown and COVID-19 restrictions are never static themselves, it's well worth consulting your accountant and tax specialists to ensure that your upcoming returns are well-adjusted to reflect the trials of these times.