Maximising Your Rental Property Deductions (Tax)
As a property investor seeking a tax benefit, you are always looking for the greatest amount you can legally claim in regards to the expenses on your rental property for the year.
Given the confusion with capital expenses versus outright claimable, we set out below what you can and can’t claim – when it comes to rental property deductions (tax).
Before we begin though, I would like to point out the importance of record keeping. Without records and receipts we cannot claim a deduction.
I often get asked if there is any secret to record keeping. Sadly, there is no secret. Just file all your receipts into an A4 arch lever folder as you pay for it. If you are so inclined, you can break your expenses further down, but if not just get the receipt into the arch lever folder and let your accountant do the rest.
Capital Expenditure
You cannot claim rental property deductions for the costs of acquiring or disposing of your rental property.
These types of expenses below are capital in nature and go to the cost base of your property:
- Advertising to sell;
- Agent commission for selling;
- Legal fees and conveyancing fees on the purchase and sale;
- Stamp duty on the purchase;
- Capital improvements;
- Travel expenses to inspect before purchase;
- Expenses not actually incurred by you, such as water usage or electricity expenses.
Allowable Rental Property Deductions
Accounting Fees
Bookkeeping costs, end of year fees, or advice from your accountant regarding the property.
Advertising for Tenants
The cost to find tenants is deductible.
Bank Charges
Are deductible.
Body Corporate Fees/Strata Title Fees
These are to cover the shared running costs of the building such as repairs, insurance, gardening, communal lighting, etc.
Borrowing Expenses
Borrowing expenses include mortgage insurance, title search fees, registration of mortgage, stamp duty on mortgage and loan establishment fees. They are totalled and written off over 5 years.
Capital Works
Special building write off, based on the actual cost of construction. The quantity surveyor report gives you the amount deductible.
Cleaning
Internal and external cleaning is tax deductible along with the cost of materials.
Depreciation
Given to you on the quantity surveyors report.
Small proportion of computer depreciation for related use.
Gardening
Included cost of mowing lawns, yard maintenance etc.
Insurance
Building and landlord insurance.
Interest
Interest on a loan to purchase or use for income producing purposes.
Land Tax
Determined by OSR and is deductible for income producing assets.
Lease Expense
Normally organised by the agent and is deductible.
Legal Expenses
Legal fees to evict a non-paying tenant.
Mortgage Discharge Fees
The costs to discharge your mortgage.
Office Supplies
Stationery & postage
Property Management
Management fees paid to real estate agents to handle collecting the rent and paying the expenses.
Pest Control
Professional costs to make your property pest free.
Quantity Surveyor Expenses
The cost to prepare the surveyors report.
Prepaid expenses
If you prepay a rental property expense – such as insurance or interest on money borrowed
Rates
Council, water and sewerage are deductible.
Repairs
Repairs that need to be made to make the property inhabitable and attractive to rent. Be careful – your repair may be classed as an improvement in some situations.
Repairs at the end of the tenancy will also be deductible even if they are to revert it back to a private residency, as long as done within that year.
Repairs undertaken within 12 months of the purchase will not be allowed as a deduction.
Security Expenses
Security patrols.
Telephone Expenses
Calls made to in relation to the rental property, also a proportion for internet for emailing the agent etc.
Travel
Travelling to inspect or maintain your property or collect the rent – you may be able to claim the costs of travelling as a deduction. This includes flights, car hire, meals, Cabs etc only if the sole purpose of the trip was to inspect the property and was only overnight. If you take the whole family and inspect the property 1 out of the 7 days, you need to apportion your expenses.
Negative Gearing
Negative Gearing has become a bit of a buzz word that is often used and not fully understood. People believe that if they negatively gear they will get a large tax refund. This however is not achieved unless you seek the right advice before purchasing your property.
(For example, the ownership percentage of your property can make a huge difference.)
Negative gearing is more beneficial if you are in a higher tax bracket, however it can still have its advantages for people on middle incomes, with the use of non-cash expenditure such as capital works write off and depreciation.
Depreciation
We strongly recommend to every client to get a quantity surveyor’s report straight after purchase. This in itself can account for thousands of dollars every year without the physical outlay of that amount.
Using PAYG Variations
One final recommendation of mine would be to get your accountant to fill out a PAYG Variation each year.
Effectively, this will allow you to get your lump sum refund from the negative gearing benefit back in your pay each week, fortnight or month through the reduction in the amount of tax you were paying weekly, fortnightly or monthly.
Brad Callaughan is a specialist in taxation, accounting and business advisory. He is the managing director of Callaughan Partners that was formed to deliver and exceed client’s expectations, whilst charging upfront fees. Brad is an avid property investor and renovator. Brad is also a strong force behind the development as well as sitting on the board of the Ross Hutchinson Foundation. He can be contacted at http://www.callaughanpartners.com.au
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Excellent information