There’re several rental property expenses for which you may be able to claim an immediate deduction the income year you incur the expense. This may be considered as investment property tax benefits. And remember…paying rental property tax is a good thing. It means that you’re making money.
Below is a list of possible Rental Property expenses that you may be entitled to claim as an immediate deduction:
(Deductions marked with an asterisk (*) may not be claimed, but will have an explanation below it)
- Advertising for tenants
- Bank charges
- Body corporate fees and charges*
You may be able to claim a deduction for body corporate fees and charges you incur for your rental property.
But remember that Strata Title Body Corporates are constituted under the strata title legislation of the different states and territories.
- Council rates
- Electricity and gas – annual power guarantee fees
- Gardening and lawn mowing
- In-house audio and video service charges
- Insurance such as Building Insurance; Content Insurance; Public Liability Insurance
- Interest on Loans*
If you take out a loan to purchase a rental property, you can claim the interest charged on that loan, or a portion of the interest, as a deduction. However, the property must be rented, or genuinely available to rent out, in the income year for which you claim a deduction.
You can’t claim a deduction for interest charged if you’re starting to use the property for private purposes.
If you refinance an investment loan for private purposes, you can’t claim a deduction for interest expenses you incurred. The same goes for using the loan for a private purpose.
Note: If the expenses were incurred partly for a private purpose, you must apportion the expense accordingly.
- Land tax*
It may be possible in some cases that land tax liabilities may be deductible, but it depends on when the land tax liability arises. Not all state legislations are the same. Therefore, the timing of when you incur a liability to pay land tax will depend on your relevant state legislation.
Your obligation to pay land tax does not rely on the lodgement of a land tax return or on the taxing authority issuing a land tax assessment. In some states, the year in which the property is used for the relevant purposes determines when you’re obligated to do so. Even if an assessment does not issue until a later date.
When you receive land tax assessments in arrears, the amount of land tax is not deductible in the income year in which you pay the arrears. The land tax amounts are deductible in the respective income years to which the liability for the land tax relates.
- Lease document expenses* – preparation – registration – stamp duty.
The cost of stamp duty on a lease is deductible as well as your share of the costs of preparing and registering a lease. But only if you have used, or will use, the property to produce income.
This includes costs associated with an assignment or surrender of a lease.
- Legal expenses* (excluding acquisition costs and borrowing costs)
There are some legal expenses related to your rental property that are deductible which include: The cost of evicting a non-paying tenant; The cost of taking court action for loss of rental income; The costs of damages claims for injuries suffered by a third party on your rental property.
Talking about Legal….You may want to review your Asset Protection Strategy.
- Mortgage discharge expenses*
Costs involved in discharging a mortgage other than payments of principal and interest are the mortgage discharge expenses.
If you took out the mortgage as security for the repayment of money you borrowed to use to produce your rental income, these costs are deductible in the year they are incurred.
- Pest control
- Property agent’s fees and commissions (including prior to the property being available to rent)
- Quantity surveyor’s fees
- Costs incurred in relocating tenants into temporary accommodation if the property is unfit to occupy for a period of time
- Maintenance and Repairs* – the cost of a defective building works report in connection to repairs and maintenance conducted.
Generally, the repairs that you may claim the expenditure for, must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.
Maintenance usually involves keeping the property in a tenantable condition. Examples are: Repainting faded or damaged interior walls; Replacement or renewal of worn out or damaged blinds, curtains, or carpets between tenants.
Some construction expenses may be claimed as capital works deductions where the expenses are capital or of a capital nature. You can find more information in the complete guide that the ATO put together for Property Investors regarding rental properties. Click HERE to get the guide and go to page 28. See Capital works deductions.
And remember, if you keep your Rental Property well maintained, you’ll have happy long-term tenants.
- Secretarial and bookkeeping fees
- Security patrol fees
- Servicing costs, for example, servicing a water heater
- Stationery and postage
- Telephone calls and rental
- Tax-related expenses
- Travel and car expenses to the extent that they are deductible*
You may be entitled to claim a deduction for travel expenses related to your rental property in the following circumstances: you are an excluded entity; you’re using the property in carrying on a business (including a business of letting rental properties); the property is not a residential rental property.
For the true meaning of ‘excluded entity’ and ‘residential rental property’ see Definitions on page 37 in the Rental Properties Guide for Property Investors.
- Water charges.
NOTE: You can claim a deduction for the above-mentioned Rental Property Expenses only if you actually incur them and they are not paid by the tenant.
Rental Property Expenses prior to the property being genuinely available for rent
You may claim expenditure such as:
- Interest on loans
- The local council, water, and sewerage rates
- Land taxes
- And emergency services levies, you incurred during renovations to a property you intend to rent out.
NOTE: You can’t claim deductions from the time your intention to rent out the property changes. For example: if you decide to use the property as your primary place of residence.
More Investment Property Tax Benefits
While the Investment Property is rented out, or genuinely available for rent, you may also claim interest charged on loans taken out for the following reasons:
- To purchase depreciating assets (like an air-conditioner or stove for the rental property)
- For repairs
- For renovations
The same goes for taking out a loan to finance renovations to a property you intend to rent out. The interest on the loan will be deductible from the time you took out the loan.
Disclosure: The information in this article was gathered from the ATO. None of the team members of Buy Real Estate Australia is a tax advisor. You may feel the need to contact the ATO or your tax advisor.