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Rental property tax deductions

Jul 16, 2019

16 July 2019

If you’re one of the many Australians who own an investment property, now is the time to take stock of your incurred expenses and work out what you can claim as a rental property tax deduction, and what you need to declare as income.

Income

First and foremost, you will need to compile the following rental income information to include in your tax return:

  • A rental property summary report from your real estate agent
  • Details of any capital gains from the sale of a property, including copies of your purchase and sale contracts
  • Any other related income, including insurance payouts for damages and reimbursements from tenants
Deductions

Below are some examples of common rental property tax deductions for investment property owners.

Remember that you need to have evidence that the money spent on the rental property, and not for personal purposes.

Administration expenses
  • Stationery used to maintain your rental property records
  • Postage on documents relating to rental property management
  • Telephone calls relating to rental property management – keep a diary record of these to satisfy the ATO
  • Legal expenses relating to debt collection or tenant problems
  • Electricity and gas – paid by you
Insurances
  • Landlords
  • Building
  • Contents
  • Public Liability
Property Agent Management
  • Fees/commissions – including GST
  • Postage
  • Statement fees and bank charges/fees
  • Leasing document expenses
  • Letting fees
Property management and maintenance expenses
  • Advertising for tenants
  • Body corporate fees or strata title fees and charges (note: special levies for capital works on a building can only be depreciated at 2.5%)
  • Cleaning
  • Gardening / lawn mowing
  • Pest control
  • Security patrol fees
Rates and taxes
  • Water rates, charges and usage
  • Council rates
  • Land tax (note: first time owners must lodge an initial land tax return with the Office of State Revenue in each state. This is your responsibility and you won’t be automatically issued an invoice for this).
Repairs and maintenance

Repairs relating to wear and tear or damage because of renting out a property. This does not include repair of any damage in existence at purchase. The expense is a repair when it is being restored. Generally, repairs include:

  • Plumbing
  • Electrical
  • Handyman

Make sure not to confuse repairs with improvements.

For example – fixing broken glass on a window is considered a repair. Replacing the whole window frame is an improvement which can be depreciated at 2.5%.

Repairs made immediately after purchase of an investment property or maintenance to make the property suitable for rental are of a capital nature (initial repair). These form part of the cost of the property and can be depreciated and they are not immediately deductible.

Settlement of property purchase
  • Balance of council rates
  • Balance of water rates
  • Balance of body corporate fees
Interest and loan account fees on loans to finance investment properties
  • For the interest to be deductible, the loan must have been applied to acquire an income producing asset e.g. rental property
  • Where loans are used for both an investment property and private assets, the interest has to be apportioned based on how much of the principal was used for which purpose. This usually happens when you use a line of credit.
Quantity surveyor
  • Report showing depreciation expenses and special building write-off
Seminars
  • Cost of attending property investment seminars – only to the extent that they relate to operating or maximising the return on currently owned properties
Deductible over a number of years
Borrowing expenses

Deductible over the period of the loan where the loan is less than five years, or otherwise deductible over 5 years. Expenses deductible include:

  • Loan application fee
  • Title search fees
  • Lenders mortgage insurance
  • Stamp duty on mortgage
  • Mortgage registration fees

Depreciation on plant and equipment
  • The ATO calls this ‘decline in value’ of depreciating assets
  • The costs of installing any plant and equipment are also depreciated
Depreciation on the building construction
  • The ATO calls this a ‘Capital Works’ deduction

Contact the team at Shakespeare on 08 9321 2111 if you’d like to discuss how the above may apply to your individual circumstances.

Source: Content courtesy of ChangeGPS Pty Ltd “ITRs Property Investors Deduction Guide” July 2019

General disclaimer: Our firm provides the information on this website for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles on this website are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose