Rental Properties

Many taxpayers don’t know what rental expenses they can and can’t claim, losing out on potentially deductible expenses.

Here is a list of items to help with that.

Rental Property Deductions Claimable When Incurred

  • Advertising for tenants
  • Bank charges on rental property loan
  • Cleaning
  • Council Rates & Water Charges
  • Gardening/Lawn Maintenance
  • Landlord and Building Insurance
  • Land taxes
  • Pest Control
  • Agents Fees & Commissions
  • Repairs and Maintenance (The repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property).
  • Stationery, Telephone and Postage
  • Travel Expenses (See below).

Keeping up to date records and receipts is very important. The ATO may audit rental property schedules at any time.

Rental Property Deductions Claimable Over A Number Of Years

  • Borrowing Expenses claimed over five years   
  • Depreciation on Plant
  • Initial Construction Costs on newer homes (even if you did not build the property – see below)
  • Borrowing Costs (the initial fees and insurance costs in setting up the mortgage)
  • Some major repairs and upgrades

Capital Costs Which Can’t Be Claimed As Deductions (but may be claimed against Capital Gains)

    Legal conveyancing costs on Purchase
    Legal conveyancing costs on Sale
    Stamp Duty
    Initial Construction Costs on older homes
    Some Major repairs and upgrades

Take Care: Deductibility of Interest

If you take out a loan to purchase a rental property you will generally be entitled to claim the interest (or a portion of the interest) as a deduction. The property must be rented, or available for rental, in the income year for which you claim a deduction. You may also claim interest on loans taken out to purchase items of plant, for renovations, or for repairs to the property occasioned by your use of the property to produce assessable rental income.

Note, however, that a deduction is not claimable simply because you use the rental property as security against the loan. The key factor is the purpose for which the money is used. The security pledged for the asset is irrelevant.

For example, if you borrow against the equity in a rental property to purchase a private residence (or for any other private purpose) the interest will not be deductible. The reverse is also true. i.e. if you borrow against the equity in your own home to purchase an investment property, the interest will be fully deductible regardless of the fact that a private residence is given as security.

Depreciating Established Homes

Claiming depreciation for assets (such as dishwashers, floor coverings, curtains, etc) is not limited to items you purchase once you own the house. Claims are available for existing assets.

Similarly, claiming the Building Writeoff is not limited to people who build their own homes. If you buy a relatively new home (i.e. one built in the last couple of decades) there may still be a substantial claim you can make.

How do you access these deductions? You need to engage the services of a quantity surveyor to appraise the house and fittings, and to prepare a depreciation report.

These reports generally cost $500 - $600. This cost is generally recouped within the first year or two because of the tax savings that wouldn’t otherwise be available to you.

If you’d like more information on anything listed, or a referral to a local Quantity Surveyor, contact Antree.

Travel Expenses

Generally, the cost of travel you incur to inspect or maintain rental properties or to collect rent is an allowable deduction.

You can claim a deduction for travel expenses for:

  • Preparing the property for new tenants (except for the first tenants)
  • Inspecting the property during or at the conclusion of tenancy
  • Undertaking repairs, where those repairs are a consequence of damage or wear and tear incurred while being rented out by you
  • Maintenance of the property, such as cleaning and gardening, while it is rented or available for rent
  • Collecting the rent
  • Visiting your agent to discuss your rental property

Some common purposes people often incorrectly claim travel expenses for (but which are not deductible) include:

  • Your own personal use of the property – if the travel is for private purposes only, no part of the expense is deductible
  • Travel to carry out general maintenance of the property while it is not genuinely available for rent
  • Travel to undertake repairs, where those repairs are not a consequence of the damage or wear and tear incurred while being rented (for example, initial repairs before the property is rented out for the first time)

A full deduction is allowed where the sole purpose of a trip relates to the rental property. However, where travel expenses are incurred partly for private purposes, only that portion relating to the rental property is an allowable deduction.

If you have any questions about what you can claim for your rental investment, contact us.