Over the years the ATO has been scrutinising many areas of taxpayer income tax returns and one of the areas that continues to be in the spotlight are investment properties. As it is that time of year again where you may be organising your paperwork to lodge your income tax return, hopefully the list outlined below will ensure you know exactly what you can and cannot claim in relation to your investment property.
Some of the most common rental deductions that can be claimed are:
- Advertising for tenants
- Bank charges
- Body corporate fees/strata levies
- Borrowing costs (including mortgage insurance) in relation to investment property loans (deductible over 5 years)
- Cleaning costs
- Council and water rates
- Depreciation, including certain capital works
- Electricity and gas
- Land tax
- Letting fees
- Pest control services
- Property agent's fees and commission
- Quantity surveyors' fees
- Secretarial, bookkeeping fees and tax related expenses
- Security patrol fees
- Repairs and maintenance costs
- Stationery and postage costs
Importantly, the deductions that you cannot claim are:
- Expenses of a capital or private nature;
- Body corporate fees to be allocated to a special purpose “sinking” fund;
- Expenses not actually incurred by the taxpayer such as water consumption and electricity paid by the tenants.
Points to be aware of when completing your tax return:
- Receipts should be maintained to substantiate any deductions being claimed.
- The property must be rented or genuinely available for rent in order to claim deductions.
- Deductions need to be apportioned if the property has not been available for rent during the year.
- As of 1 July 2017, you are no longer able to claim any travel expenses incurred to inspect, maintain or collect rental income in relation to an investment property.
- Lastly, any investment property purchased after 9 May 2017 can only have depreciation claimed on outlays actually incurred by the investor.
In the light of recent changes and the ATO’s focus on investment properties, it can become an area of complexity for many taxpayers. If you would like us to help you, please call us to arrange a complimentary meeting to discuss how we might be able to assist (08) 9387 5637.
Please note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
Stay tuned for my next article, which will look at rental of holiday homes.