ATO cracks down as 90% of rental income tax statements are wrong
With the Australian Taxation Office (ATO) reiterating its focus on rental property income and tax deductions this tax ti...
If you want to make the most out of your investment properties at tax time, you need to know all the items and expenses you can claim back.
Blogger: Warren Dworcan, managing director, Rate Detective Finance
With tax time just around the corner you should be putting together the figures of everything you are eligible to claim as a tax deduction, which are any expenses incurred whilst owning and maintaining each property. Although any rental profit you make will be subject to tax, by claiming the available tax deductions you can reduce your rental profit and ultimately reduce your taxable income to make the most out of your investment. There may be some you are unaware of:
Advertising for tenants
If your property is available for rent the cost of advertising for tenants is tax deductible. These costs include advertising with local real estate agencies, posting advertisements in newspapers or local publications.
The bank charges on your loan account (usually in the form of monthly fees) are tax deductible. Locate your bank statements to ascertain total bank charges for the income year.
Any utilities that you pay, not your tenants, are tax deductible. These include water, electricity and gas.
Body corporate fees
These are usually charged on a quarterly basis to cover the costs of maintaining the property.
Borrowing expenses, include, amongst others, loan establishment fees, title search fees, costs for preparing and filing mortgage documents, mortgage broker fees, stamp duty charges, valuation fees and mortgage insurance.
You can claim a tax deduction for construction expenditure, or capital works. To maximise your tax deductions you can obtain a depreciation report which will list the year of construction, the construction costs, and the deductible amount each year.
The cost of cleaning professionals and cleaning products for your investment property is tax deductible.
Council rates are imposed on landowners to help fund the cost of community infrastructure and services to the local municipality. Councils generally offer a one-off annual payment or a payment plan of quarterly instalments and all payments are tax deductible.
Decline in value of assets
Obtain a depreciation report or alternatively, you will need to supply your accountant with information to support the purchase date and purchase price of each asset. Commonly found depreciating assets are air conditioning units, removable floor coverings, window curtains and blinds, dishwashers, furniture, heaters, hot water systems, refrigerators and freezers, stoves, cook tops and range hoods, swimming pool filtration and cleaning systems, television sets and washing machines. The cost of a quantity surveyor’s report is also tax deductible.
Paying a gardener to trim the hedges, lay fertiliser, or mow the lawn is tax deductible.
Insurance on building, contents, public liability and landlord’s insurance are all deductible. While strata insurance is mandatory it only covers the building so you may want to consider protecting your home contents as well as the risk of defaulting tenants.
Interest on loans
Interest charges on a loan are tax deductible but principal or capital repayments are not. Only the interest component directly related to your property is tax deductible. If you are paying principal and interest on your loan then you will need to calculate the interest component for the year. Locate the bank loan statements for each investment property to ascertain the interest paid for the income year. However if you have the wrong loan structure you may be missing out on potential deductions.
Land tax is tax deductible. Land tax is a tax levied on the owners of land and it is based on the value of land. You will be liable for land tax if you own, or part-own vacant land, a holiday home, an investment property, a company title unit, or a residential, commercial or industrial unit if you own above a certain sqm of land in total.
Tax deductible legal expenses include the costs of evicting a defaulting tenant and the costs of terminating a lease. You cannot claim the legal fees you pay when you originally purchase the property until it is sold.
If you pay for your investment property to be sprayed or fumigated by a pest controller, then you are generally entitled to a tax deduction.
Property agent’s fees and commission
A property agent charges fees for maintaining a property on your behalf. The charges for the year-end financial statement, reference-check fees, leasing fees and monthly rental statement fees are all tax deductible.
Repairs and maintenance
A repair is generally tax deductible. Renovations, improvements, replacements and extensions are treated differently to repairs and maintenance. Renovations, improvements, replacements and extensions are generally deductible over more than one year.
The ongoing servicing costs of a hot water system, an elevator or a pool heating system are tax deductible.
Stationery and postage
Keep a record of all your stationery and postage expenses for the year. Don’t dispose of your records. This is an often overlooked tax deduction by investment property owners.
Telephone calls and rental
Telephone accounts directly related to the running of your investment property are tax deductible.
The cost of obtaining tax advice from a registered tax agent is tax deductible. Tax preparation fees and accounting charges are also tax deductible.
Travel and car expenses
Investment-related travel and car expenses include airfares, car hire, taxis and accommodation. These expenses are tax deductible if you incur these costs while collecting the rent, inspecting the property, or traveling for some other reason related to your investment property. To claim car expenses, you will need to record the size of your vehicle’s engine as well as the number of kilometers you traveled while maintaining your investment property each year.
We advise you speak with an accountant if you are unsure about any of the above.
About Warren Dworcan
Warren Dworcan is the Managing Director of Rate Detective Finance and has been dedicated to growing the business into becoming one of the leading independent brokerages in Australia.
Successfully assisting thousands of Australians with loan enquiries in excess of more than $1 billion, Warren alongside his highly qualified and dedicated staff are equipped to deal with all aspects and complexities associated with the mortgage market.
Recognised as one of the top brokers in Australia, Warren was awarded the coveted Australian Broker of the Year award in both 2012 and 2013 at the Australian Broking Awards.