Tax time is fast approaching and for those who own a rental or investment property the most important question you need answering is the title of this blog: Rental Property – What can I claim?
Well, there is good news and bad news. The good news is, we’re going to list what you can claim and put a pretty border around them. The bad news is, there are terms and conditions on those claims and whether or not you read till the end of this post may determine whether the ATO grants your deductions or not.
To give you some context. According to the ATO’s taxation statistics in the 2015-16 income year, total rental deductions came to approximately 43 billion dollars and this figure is only increasing. The biggest contributor to deductions is due to the interest of a mortgage.
Individuals – rental income and deductions, 2011–12 to 2015–16 income years
Source: Australian Taxation Office. “Taxation Statistics 2015-16.”, 27 Apr. 2018, https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2015-16/?anchor=info1#info1
Expenses you can claim may include:
|Advertising for tenants||Cleaning||Property agent’s fees & commission|
|Body corporate fees & charges or strata levies||Gardening & lawn mowing||Repairs & maintenance|
|Council rates||Pest control||Some legal expenses i.e. evicting a non-paying tenant|
|Water charges||Insurance (building, contents, public liability)||Bank charges|
|Land tax||Interest expenses||Depreciation|
|Servicing costs i.e. servicing a water heater||Stationary & postage costs||Tax-related expenses|
|Borrowing expenses i.e. stamp duty charged on the mortgage||Capital works expenditure i.e. an extension (adding a room)||Letting fees|
7 of Many Terms and Conditions
- The property must be either rented or available for rent in order to claim expenses, you aren’t allowed to use the property privately or make it seem like it is available. By this, I mean jack up the cost of rent to an unrealistic amount.
- If the ATO thinks you’re waiting for Nicole Kidman to rent out your place for an insane amount of money they will not allow your claims.
- If the property is available for rent, show it with proof of advertising or making sure your prices are competitive with the other properties in the area.
- You can’t claim when the expenses weren’t paid by you, but by your tenants.
- You are not allowed to claim acquisition or disposal costs i.e. things included in your property’s cost base.
- You must have proof for the deductions you’re claiming i.e. receipts.
- You need to consider that your expenses may need to be apportioned, this can happen if:
- You only rent out your property for part of the year;
- Only part of your property is used to earn rent;
- You rent your property at non-commercial rates i.e. renting to a family member or friend for a significantly discounted amount.
- From 1 July 2017, you can no longer claim travel expenses. Costs involving inspecting, maintaining or collecting rent can no longer be claimed as a deduction.
- Residential properties purchased on or after 9 May 2017 can no longer claim depreciation on previously purchased plant and equipment. Only the investor who made the purchase is able to claim the depreciation. It is important to note though that the rules to depreciation do not apply to capital works deductions.
Ultimately when it comes to questions relating to investment property’s it can be extremely beneficial seeking the professional advice of a certified and trusted accountant who can advise on the dos and don’ts of claiming deductions.
There may be exceptions to said information found in this post, please see https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Rental-property-expenses/ for further information.
Questions regarding rental property claims?
Pauline Campbell – Senior Accountant
A valued member of Fitzpatrick Group since 2000, Pauline has a Bachelor of Business, majoring in Accounting . She specialises in business and company tax returns, and excels at preparing and lodging BAS statements for her clients.