Tally up your allowable deductions
Many of the expenses associated with your investment property will be deductable, but not all. In some cases, you may only be able to claim part of the expenses. Certain deductions can be claimed in the tax year you incurred the expense, while other costs must be claimed over several years (depreciating assets and capital works expenses, for example). The Australian Tax Office’s Guide for rental property owners, Rental Properties 2019, is a great tool for trying to make sense of your potential tax deductions. Following are the types of deductions you may be able to claim, but again, please consult your accountant to be sure they apply to you.
According to the ATO guide mentioned above, you may be able to claim an immediate deduction (in the year you incur them) for expenses you incur for owning, managing and maintaining your property: property management fees, advertising for tenants, insurance, interest on loans, land tax, legal expenses, pest control, maintenance, repairs and so on.
With the tax time just around the corner, it may be a good idea to attend to any maintenance or repairs that may be required on your investment property now. Depending on your circumstances, it could be possible to claim the expenses as tax deductions on your 2019-20 tax return.
Expenses deductible over several years
Borrowing expenses, amounts for decline in value of depreciating assets, and capital works deductions may be claimed over a number of income years. It’s important to have a professionally prepared depreciation schedule if you want to claim for depreciating assets, so contact your local Quantity Surveyor for assistance if you need to organise or update an existing one prior to submitting your tax return.
Borrowing expenses include loan establishment fees, title search fees charged by the lender, costs for preparing and filing mortgage documents, mortgage broker fees (we don’t charge fees, but some do), stamp duty charged on the mortgage, fees for a valuation required for loan approval and lender’s mortgage insurance. Borrowing expenses exceeding $100 are spread over five years or the term of the loan, whichever is less, otherwise they are deductible in the year incurred.
When you buy an investment property, you’re essentially purchasing the building plus other items of ‘plant’, such as the air-conditioner, cooker and hot-water service. These are depreciating assets and you can claim depreciation for them, provided you have a proper depreciation schedule, as mentioned above. If you have a depreciation schedule, you can deduct an amount equal to the decline in value of the depreciating asset during the income year.
Capital Works Deductions
Certain kinds of construction expenses can be claimed as capital works deductions. For example, if you add a room or remove an internal wall, these deductions are claimable once the construction is finished, and are generally spread over a period of 25 or 40 years. The capital works deductions you claim will be taken into account when working out your capital gain or capital loss from the rental property.