Knowing about your investment property tax deductions will undoubtedly boost your tax return.
However, many investors miss out on expense claims because they aren’t equipped with the knowledge presented by the Australian Tax Office (ATO). Seeing the full potential of all the tax breaks available to you could be the difference between you hoping to earn enough money from your investment property and having positive cash flow.
What you can claim
- Depreciation
Just as it is for vehicles, general wear and tear on your investment property is inevitable. The consequence of the wear and tear will affect the financial value of your property. This is referred to as depreciation. Luckily, for property investors, depreciation is a rental property deduction. It’s a non-cash tax deduction that can be claimed over time and offset against your income.
Capital Works Depreciation (Division 40)
If your investment property was constructed after 16 September 1987, you are able to claim a tax deduction on the building depreciation costs. If you decide to do any renovations on your investment property, the costs are also tax-deductible as a rental property deduction. However, unlike the maintenance expenses, the construction costs are not fully deductible in the same year that you pay for it.
You can claim the costs in portions over several years. This is known as a Capital Works deduction. Like plant and equipment depreciation, this is a non-cash investment property tax deduction. You can generally claim 2.5% of the construction cost per year from the time that it was built, for 40 years.
Plant and Equipment Depreciation (Division 43)
You can similarly claim depreciation for wear and tear on any fixtures and/or fittings in the home. Fixtures and fittings include things such as carpets, cupboard, aircon, an oven, and showers, for example.
Quantity Surveyor Fees
To maximise the return on your investment, you should possibly seek the advice of a quantity surveyor. They can help prepare a depreciation schedule for your investment property. The bonus here is that the fees are a tax deduction in the year of expense.
- Loan Interest
This is generally the biggest investment property tax deduction that you can claim. If you had to take out a loan from the bank to purchase your investment property, you are entitled to claim any interest charged on the loan as a rental property deduction.
- Rental Expenses
As a landlord, you are liable for all kinds of expenses that can be claimed as rental property deductions each year. These expenses can be claimed in the same tax year that you paid for them.
Advertising Costs
Making use of advertising platforms to find tenants for your property is a tax-deductible expense.
Rental Agent Fees
Should you choose to appoint a property agent to manage the property and maintain a good relationship with your tenants, then he/she will be entitled to a fee that usually amounts to between 6% and 8% of gross rental income. Engaging a property agent can be an investment property tax deduction.
Legal Expenses
You may wish to seek legal assistance when it comes to preparing the rental documents. Or you may find yourself in a situation where you will need legal counsel to assist you in obtaining an eviction order. Legal counsel is an investment property tax deduction.
Council Rates
These expenses cover the cost of the rubbish collection and maintenance of the street on which your property is located. Provided that you are the one paying the council rates, and not the tenant, you can claim this as an investment property tax deduction.
Utilities
If you are the one responsible for paying the water, electricity, and/or gas, you can claim these expenses as an investment property tax deduction. If, however, you require the tenant to pay for the utilities, you can’t claim it as a rental property deduction.
Pest Control
Hiring a pest controller to rid the property of pests, is an expense incurred whilst ensuring that your investment property continues to generate rental income. So, it is a rental property deduction that you can claim as an immediate tax deduction.
Land Tax
As long as you have rented out the property, you are entitled to claim the land tax as an investment property tax deduction. *As each state has its own regulations concerning land tax, consult a tax advisor on how to ensure you are submitting the correct claim in the right year.
Cleaning
If your rental agreement with the tenant includes a weekly cleaning service, for example, this would be an investment property tax deduction. Similarly, the expense to have the house well cleaned after the tenant vacates the property is tax-deductible.
Gardening Costs
The garden maintenance and replacement of plants and/or garden structures on your investment property is a claimable expense. However, any improvements made to the landscaping that will increase the property’s value will not be claimable under gardening expenses.
Body Corporate Fees
if your investment property is a unit or is a townhouse, you will need to pay body corporate fees. This fee covers building insurance and the maintenance of shared areas. It is an investment property tax deduction if you (not the tenant) pay it.
Stationery, Phone, and Internet Costs
Renting out your investment property is similar to managing a business. Any stationery, phone, and internet usage can be claimed as an investment property tax deduction if they relate to the management of your investment property.
Bank Charges
Any bank fees charged on the loan used to purchase the investment property are tax-deductible. Similarly, if you have a bank account specifically for rental property(ies) then fees on this account would be claimable.
Accountant Costs
The fact that accounting fees are tax-deductible is a good incentive to have an accountant to manage your tax returns and find ways to maximise your tax return.
- Capital Gains Tax (CGT)
If you sell your investment property within 12 months of owning it, you are required to pay CGT on the profit of that sale. If, however, you own the house for more than 12 months before selling it, you are eligible for a 50% discount on your CGT. This means you will only need to include half of the capital gain in your tax return.
- What can’t you claim on an investment property?
According to the ATO, expenses that aren’t considered to be investment property tax deductions include:
- expenses incurred through the personal use of your investment property;
- the repayments of the principal sum borrowed to purchase the investment property;
- solicitor and conveyancer fees for the purchase or sale of the property;
- other expenses incurred during the purchase or sale of the investment property including a buyer’ agents fees; and
- stamp duty fees charged on the transfer of property into your name.
- travel expenses to carry out the inspection of your rental property yourself used to be claimable but unfortunately no longer can be claimed.
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
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