Property is a solid investment opportunity for those looking to increase their financial security.
If you are a landlord, you may be looking for ways to reduce your tax liability this year. This may assist you in turning your property’s cash flow from a negative into a positive.
However, there are limitations to many of the tax deductions that may be available to you, which you need to be aware of.
It is important to note that you can only claim deductions on your property during the periods in which it was tenanted or genuinely available for rent. You will also only be able to claim the portion of an expense that was used for income-generating purposes and must keep records to prove these expenses.
With that in mind, here is a list of the main tax deductions that landlords should consider when tackling their income tax returns:
Maintenance & Repairs
One of the key deductions that landlords often come into strife with the ATO is to do with maintenance and repairs conducted to the property.
Repairs can be claimed as an immediate deduction if they relate directly to wear and tear (e.g replacing broken tiles after a storm with professional help). You will need to also understand the difference between renovations and repairs. This is because there are different tax treatments to renovations and repairs, and getting the two confused can be costly.
If you were to replace an appliance, you would need to claim the cost as a depreciation deduction over the course of an asset’s lifespan. Or, if you were to make an upgrade (such as replacing an old fence) to increase the value of the property, you will need to claim these costs as a capital works deduction at 2.5% a year for 40 years.
If your rental property was affected by recent flooding events across NSW and Queensland, you may be able to claim the repairs required to make the property habitable again as a tax deduction. This should be discussed with your accountant, however, as it may be difficult to determine the extent of these deductions.
Rental Advertising Costs
It’s a common saying: you have to spend money to make money. So if you have spent money on marketing your property using online or print media, brochures and signs, you can claim these advertising expenses against your income in the same year that you paid for them.
Loan Interest
You can claim the interest charged on a loan for an investment property and any bank fees for servicing the loan. You cannot however claim your repayments on the principal sum of the loan, nor claim interest on the entire size of the loan if you refinanced a portion of the loan for private purposes (regardless of whether equity in an investment property was used as security in that loan). Remember that it is the interest on a loan used to buy your investment property, it doesn’t matter what security you have used. Conversely, borrowing against your investment property to pay for a holiday does not generate tax-deductible interest.
Council Rates & Strata Fees
Council rates can be deducted in the year that they are paid, but, as with all other expenses, can only be claimed for the periods in which the house was being rented out.
If your property is on a strata title (such as an apartment block or eligible townhouses), you can claim the cost of body corporate fees.
Building Depreciation
Depending on when your investment property was built, you may be able to claim a deduction on the depreciation of the building’s structure and any renovations you make to the property.
Pest Control
As the landlord you can claim an immediate deduction for the hire of a pest control professional.
Insurance
You can claim the cost of insuring a rental property. This may be especially important to note for those who have flood-affected properties, or whose has increased in cost as a result of the property location.
The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.
