A Guide To Rental Property Tax Deductions

Investing in rental properties offers numerous tax deduction opportunities that can reduce taxable income and improve cash flow. Effectively utilising these deductions supports the growth of a successful property portfolio and enhances potential for future investments. This article is written and supplied by BMT.

Advertising fees

Expenses incurred for advertising and marketing to secure tenants are tax

deductible when arranged independently. If conducted through a property

management agency, advertising costs are typically included in their costs and as

part of those fees.

Body corporate fees

Owners of strata properties can claim body corporate fees. Special levies can

also be claimed and it’s important for your accountant to know the type of levy,

whether it’s a capital works deduction (claimed over time) or an immediate

deduction.

Insurance

Protecting your investment property against underinsurance is an important

step. The two most common insurances you need for a rental property includes

landlord insurance and building and contents. Your insurance premiums are tax

deductible. When you pre-pay for your insurances you can claim it back in the

same financial year.

Cleaning expenses

Costs for cleaning the rental property, whether through professional services

or purchased cleaning supplies, are deductible. However, time spent cleaning

personally is not eligible for deduction.

Council rates

Local government and council rates are fully tax deductible for the time your

property is available for rent.

The Australian Taxation Office (ATO) considers these as ongoing expenses that

are incurred in the course of earning rental income. The same applies if your local

council charges an annual emergency services levy.

Gardening and lawn mowing

If your lease agreement includes garden and lawn maintenance, expenses such as

hiring professional lawn mowing or gardening services are 100% tax deductible.

Interest repayments

You can claim the interest charged on your rental property’s home loan. This is in

addition to any other fees related to servicing the loan.

It’s important to note that you can’t claim payments made on the home loan’s

principal amount. The same applies if you have used part of the loan for

private purposes. In this instance, any interest repayments deductions must be

apportioned.

Land tax

Land tax is paid annually when you own a property (that isn’t your main residence)

that’s above the land tax threshold.

You can claim land tax on your investment property as a tax deduction each

financial year. Land tax amounts, when it’s payable, the threshold and available

exemptions and concessions differ between states and territories, so it’s important

to check what applies to you.

Legal fees

Legal expenses related to rental activities, such as disputes over tenant damage,

are deductible. Legal fees associated with property acquisition are not deductible

and instead contribute to the property’s cost base.

Pest control

Expenses for pest control, if the landlord is responsible as per the lease agreement,

are deductible.

Property management fees

Fees for professional property management, including related communication

expenses, are fully deductible.

Refinancing costs

Administrative costs associated with refinancing an investment property mortgage,

such as establishment or break fees, are deductible.

Repairs and maintenance

Repair expenses (e.g., fixing a broken fence) and maintenance costs

(e.g., varnishing a deck) are deductible. Capital improvements (e.g., retiling a

bathroom) must be depreciated as capital works deductions.

Tax depreciation

Depreciation is generally the second largest and the only non-cash deduction

available to property investors, meaning you don’t need to spend money to

claim it. Property depreciation is the natural wear and tear of a building and its

assets over time. The ATO allows owners of income-producing properties to claim

this as a tax deduction.

Claiming depreciation deductions are an essential component to property

investment, failing to claim will result in missing out on thousands of dollars.

BMT Tax Depreciation’s specialist quantity surveyors make sure all claims are

maximised, ensuring you claim all available deductions compliantly.

The BMT Guarantee means if they can’t obtain at least double their fee worth of

deductions in the first full financial year claim, there will be no charge for their

services. BMT found residential clients an average of over $11,000 in first full

financial year deductions last financial year.

Tax depreciation schedule and accounting fees

Paperwork and tracking income and expenses can be extensive when owning an

investment property. Having an accountant to look after this for you is the easiest

way to make it a stress-free experience.

Your accountant uses a tax depreciation schedule prepared by a specialist

quantity surveyor to determine your depreciation deductions every year. Both

your accountant’s fees and the tax depreciation schedule fee are tax deductible in

the same year you paid for them.

Travel

Legislation changes made in 2017 may affect your eligibility to claim travel

expenses to and from your rental property.

As a property investor, you cannot claim travel expenses to visit your property.

However, you can claim travel expenses if you are in the business of renting

residential properties. Therefore, the ATO only allows the following entities to

claim travel expenses:

■ corporate tax entity

■ superannuation plan that is not a self-managed superannuation fund

■ public unit trust

■ managed investment trust

■ unit trust or a partnership, where all members are entities of a type listed above.

Utilities

Including utilities under a lease agreement can increase tenant demand and the

property’s rental rate. Any utilities you include and pay for, including electricity

and internet, are tax deductible.

Water charges

Any water charges you pay for the property are tax deductible. While water usage

is sometimes covered by the tenant, the expenses you directly incur, such as the

annual service charge and any sewer service charges, can still be claimed.

If you're interested in acquiring a property investment manager, call Cara Pratt today 0407 644 300 - your property management expert.

Or if you’re considering buying or selling a property and seeking to understand the current market conditions, contact Greg Pratt for enquiries 0413 624 308.

Disclaimer: This article is general in nature and does not constitute financial advice. Investors should consult a qualified accountant or tax adviser before making financial decisions.