Rental Property Tax Deductions

Most well-kept properties in a decent suburb will serve as a very good long term future investment and using rental property tax deductions are a great way to boost your tax refund as well.

One of the huge benefits, under current financial laws, is that if your expenses on your investment property and interest payments are greater than the income you receive from your rental property’s tenants, you’re able to claim that loss as a rental property tax deduction every year. For tax purposes this is known as your rental property being negatively geared as your outgoings are greater than your income.

A Few Things to Remember About Rental Property Tax Deductions

Tax deductions can be rather tricky, especially regarding rental properties. Not all deductions to help offset the costs of the rental property can be claimed in the same year, and some can’t even be claimed until the property is sold.

Therefore in order to make your tax time simpler and to make sure you don’t land into any issues with the Australian Tax Office, it is highly recommended that as a rental property manager you learn what can and can’t be claimed for each given year.

Here are some of the more important points you need to know and remember

Available for Rent
First of all, it’s very important to know that you can only claim rental property tax deductions during a year where a tenant was residing within the property OR at least actively advertised as available for rent.
Less than the Market Rate
If for some reason you rent out the property at less than the going market rate for the property you can claim a portion of the expenses in the same ratio. For example if you choose to rent the property out to friends or relatives for only $150 while the going market rate is $450, you can only claim 30% of the expenses as that’s the ratio between the actual rent and the market rent.
Joint Ownership
Every person that owns a share in the property can claim rental property tax deductions in their return. However, they can only claim for the amount that they own the property. For example if you and another each own 50% of the property you can each only claim 50% of the expenses related to it, however if it was split evenly between 3 people, you could each only claim approximately 33% of the expenses.
Borrowing Expenses
If you borrow money when you first purchase the rental property these expenses can be claimed as a rental property tax deductions, however it must be claimed over a 5 year period.
Less than $300
Purchases below $300 each for capital items, such as a bathroom mirror or new ceiling fan CAN be claimed in the same year at the full cost.
Low Value Pool
If a lot of inexpensive purchases have been made it is highly recommended that they all be placed in what is known as a low value pool. To be eligible however, the amount must be less than a total of $1000 between all the items.
Depreciation
If the cost to replace a capital item, such as a washing machine or dishwasher etc., is greater than the $300 then the tax deduction must be spread across the item’s ‘effective life span’. Otherwise known as the amount of time the item is considered usable by the Australian Tax Office. This is because the item’s worth diminishes over time, and is called depreciation.
Self-Bought
Depreciation on items can only be claimed if you purchased them yourself as the property owner. You CAN NOT claim depreciation value for any items that were already installed within the property before you purchased it.
Over Time Claims
Renovations and capital work costs performed on the property can be claimed over 40 years at a 2.5% rate of the total cost per year.
Initial Repairs
Any costs of improvements or initial repairs to the property before it is rented to a tenant CAN NOT be claimed as a standard tax deduction. These costs are instead classed under capital works and must be claimed over time (40 years at 2.5% rate) OR claimed after selling the property.

Claiming Common Rental Expenses: When and How

Claim these expenses in the same tax year that you paid for them:
• Advertising fees
• Interest on loans
• Insurance
• Insurance payments
• Management fee
• Council rates
• Water rates
• Gas and electricity bills
• Internet access
• Quantity surveyor fees
• Body corporate fees
• Land tax
• Property maintenance
• Property repairs
• Garden maintenance
• Pool maintenance
• Servicing costs
• Cleaning
• Pest control
• Telephone calls
• Stationery
• Postage
• Tax agent and accounting fees
• Bookkeeping costs
• Some legal expenses (i.e. related to evicting tenants)

Claim these expenses over time (Talk to your tax agent about how much and over what period of time!)

• Mortgage insurance
• Valuation fees
• Broker fees
• Loan set up fees
• Solicitor fees related to loans
• Stamp duty on loans
• Fees for title searches
• Depreciation of capital items over $300 ONLY if you purchased them.
• Capital Works (improvements or additions to the property such as renovations, new roof etc.)

Claim these amounts when you sell the property:

• Building inspections (prior to purchase)
• Initial repairs
• Legal costs for purchase and sale (including property stamp duty)
• Building additions since purchase
• Sale and purchase amounts (as per Settlement Statements)

What’s the difference between Repairs, Maintenance and Capital Works?

Most costs for repairs and maintenance can be claimed the same tax year they’re carried out as long as the costs are incurred while the property is being rented out or advertised as available for rent. For renovations or improvements, known as Capital Works, the expense incurred must be claimed over several tax periods. Here are some examples to help recognise the difference works. If you’re ever unsure what kind of claim you should make, never hesitate to ask a professional tax agent but to help you along with understanding, here are some examples;

Repairs Example: Repairing part of a fence or fixing a broken kitchen cupboard can be claimed in the same year.

Maintenance Example: Costs regarding maintaining a garden, mowing the lawn, or repainting an outside wall can be claimed the same year.

Capital Works Example: Completely upgrading a kitchen or a bathroom must be claimed over several years.

What You Need In Order To Claim

In order to make a claim you need to make sure you have ALL expense receipts and EVERY document relating to any expenditure as well as the income for the rental property. These documents include everything from water bills, gardening costs all the way through to insurance costs and interest payments. You can’t claim any rental property expenses if you can’t show proof that the claims are legitimate through a receipt or a bank statement. So remember to keep track of all expenses during every financial year in order to maximise your rental property tax deductions!