For the benefit of the thousands of property investors we assist and speak with about their investment property needs, we thought the below information would come in handy and is from our friends at Property Tax Specialists, and re-published with their permission.
Below is a list of items that can be claimed as a deduction against rental income for this year.
Further below is a list of items that are not deductible, usually questioned by ATO or deductible over a number of years.
Deductible - Immediately
Property management & maintenance expenses
Advertising for tenants – directly by you or where the agent charged you
Body corporate fees or Strata Title fees and charges
Special levies for capital works on a building can only be depreciated at 2.5%
Cleaning
Gardening/Lawn Mowing
Pest control
Security patrol fees
Rates & Taxes
Water rates, charges & usage
Council rates
Land tax – first time owners must lodge an initial land tax return with the Office of State Revenue in each state – YOU have to initiate this. They will not chase you up but they will charge additional interest for late lodgement.
Property Agent
Fees/commissions – including GST
Postage & petties,
Statement fees and
Bank charges/fees
Lease document expenses
Letting fees
Administration expenses including
Stationery used to maintain your rental records etc.
Postage on documents relating to property management
Telephone calls relating to property management – ATO prefers to see a diary
Legal expenses relating to debt collection or tenant problems
Electricity & gas – where not covered by the tenant
Insurance
Landlords
Building
Contents
Public liability
On acquisition – from the solicitor’s settlement letter
Balance of council rates
Balance of water rates
Balance of body corporate fees
Repairs & Maintenance – relating to wear & tear or damage as a result of renting out the property. The idea is that an expense is considered a repair when the functionality of the item is being restored. Generally, repairs include
Plumbing
Electrical
Handyman
Etc.
ATO is particularly vigilant to catch people who are claiming expenses described as repairs when they are considered to be improvements.
Example – fixing a broken glass on a window is considered a repair. Replacing the whole window frame is an improvement which can be depreciated at 2.5%
Repairs made immediately after purchase of the investment property or maintenance to make the property suitable for rental are considered to be of a capital nature – part of the cost of the property and can be depreciated. They are not deductible as ATO considers the lower price of the property reflects its state of disrepair.Interest & loan a/c fees on loans to finance investment properties.
For the interest to be deductible the loan must have been applied to acquire an income-producing asset e.g. rental property
Where loans used for both investment property and private assets the interest has to be apportioned based on how much of the principal was used for which purpose.
This usually happens when people are using a Line of Credit facility.
Note - From 1 July 2019, expenses related to holding vacant land, including land on which a residential rental property is under construction, or which has a completed residential property that is not available for rent, are not deductible, regardless of when the land was purchased This includes interest expenses or other ongoing borrowing costs to acquire the land, land taxes, council rates or maintenance costs. However, these will form part of the cost base.
Interest drawn from cash in an offset a/c attached to a Main Residence loan may not be deductible – consider refinancing reducing Home loan and taking a larger investment loan.
Travel expenses for the following are NOT Deductible from 1st July 2017
Inspect property
Maintain property
Collect rents
Cost of preparing a Quantity Surveyor’s report showing depreciation expenses and Special Building Write-off
Seminars – the cost of attending property investment seminars – only to the extent that they relate to operating or maximizing the return on currently owned properties
Where money is spent on relevant seminars before any property is acquired, there will be no deduction available
Deductible ... OVER A NUMBER OF YEARS
Borrowing Expenses – deductible over the period of the loan where the loan is less than five years. Otherwise deductible over five years. Expenses deductible include:
Loan Application fee
Lenders legal fees
Title search fees
Lenders mortgage insurance
Stamp duty on mortgage
Mortgage registration fees
Depreciation on Plant & Equipment – ATO calls it Decline in Value of depreciating assets – Capital Allowance - Assets existing at 30/6/2017
from 1 July 2017 depreciation available only for
new assets purchased - not used before
assets included in new residential properties
NOT available for assets in the second-hand property previously depreciated by the vendor
Depreciation on the building construction – ATO calls it Capital Works deduction
Cost of installing any plant & equipment such as Hot Water Systems or air conditioners – are considered part of the cost of the system – to be depreciated
Set of assets e.g. dining table and 6 chairs – is to be depreciated in accordance with their effective life
Each item cannot be separately deducted for being under $300.
NOT Deductible ...
The following items are either not deductible or considered to be of a capital or private nature by ATO
On Purchase
Purchase price – forms part of Cost Base reducing Capital gain on sale
Stamp duty on the purchase
Legal/conveyancing fees
Pest & Property inspection
Sourcing Fee
Renovation during the ownership period
Renovations immediately after purchase
Repairs immediately after purchase
On Sale of a property
Legal/conveyancing
Advertising
Agent fees
Pre-Purchase expenses including (especially if the property was not purchased)
Attending seminars to acquire more property
Cost of reports on the property prior to purchase
Travel to inspect the property prior to purchase
Where the property was not available for rent, then all the expenses described above are not deductible
Particularly relevant where the property is used as your personal holiday accommodation.
Listing with the agent and his documentation helps prove its availability for rental
Cost of improvements or renovations can only be depreciated over 40 years at 2.5% p.a
