As a rental property owner, it pays to understand the array of expenses you can claim to optimise your tax deductions. While you can’t claim costs paid by your tenants, there’s a wide range of deductible expenses available. Here’s a breakdown of the most common deductions:
1. Advertising for tenants
The costs of advertising both digital and physical are deductible.
2. Body corporate administrative fund fees and charges
Fees paid to a body corporate for property maintenance and management are deductible.
3. Council rates, water charges, land tax
Council rates, land tax, local government fees, utility charges are deductible.
4. Cleaning, gardening and lawn mowing
The costs of cleaning, gardening and lawn mowing, whether DIY or via outsourced services, are deductible.
5. Pest control
Costs for pest control and eradicating insects and rodents in a rental property are deductible.
Insurance covering the rental property’s building, contents, public liability, loss of rental income, etc, are deductible.
7. Interest expenses
Interest on loans taken to purchase or improve a rental property, buying assets or repair damages to the rental property are tax-deductible. However, deductions cannot be claimed for additional payments made to reduce the loan’s principal, private purchases made with a portion of the loan, new property purchases that are not used to generate income etc.
8. Pre-paid expenses
Immediate deductions can be claimed for prepaid expenses under $1,000, or for prepayments over $1,000 with a service period of 12 months or less. Prepayments over $1000 for more than a year may need to be spread over the number of years that the payment covers.
9. Property agent’s fees and commission
Agents fees ranging from advertising, screening tenants, collecting rent, handling maintenance requests, and resolving tenant issues, are deductible rental expenses for tax purposes.
10. Repairs vs improvement
Repair and maintenance (R&M) expenses refer to costs incurred to maintain a rental property, fix the wear and tear or damages and restore it to reasonable condition. Examples include replacing broken windows, fixing storm-damaged gutters, or repairing electrical appliances. R&M expenses are deductible in full.
On the other hand, work that enhances the property’s features and value are not immediately deductible but can be claimed over several years as capital works deductions or capital allowances.
11. Legal expenses
Legal expenses are deductible when incurred for the preparation, registration, protection, and management of the property, and in particular, evicting non-paying tenants, court actions for lost rental income, and defending claims for injuries on the property.
However, expenses like solicitor’s fees for property purchase or loan document preparation are not deductible.
If you have expenses whose deductibility you are not sure about, you are welcome to reach out to our friendly team to discuss.
Source: Australian Taxation Office