Over the past year there has been a big increase in the number of people joining the property market and investing in rental properties. And it’s no wonder why the popularity has increased with low interest rates and low home prices, now is a great time to become an investor. Aside from the usual benefits associated with investing in rental properties, there are also tax deductions and things to keep in mind when considering rental properties.
According to the ATO, you can claim the following expenses relating to your rental property but only for the period your property was rented or available for rent. These expenses include:
- Advertising for tenants – Once you have a rental property, it’s assumed you need someone to rent it. Advertising for tenants is a deductible expense you can claim, for example, an advertisement in a newspaper.
- Bank charges – This includes any bank charges on your loan, for example, monthly fees are tax deductible.
- Body corporate fees and charges – These are charged for the maintenance of common areas of your property.
- Borrowing expenses – This includes: stamp duty charged on the mortgage, loan establishment fees, title search fees, costs for preparing and filing mortgage documents, mortgage broker fees, fee for a valuation required for loan approval and lender’s mortgage insurance.
- Capital works – You can claim; building construction costs, the cost of altering a building and the cost of capital improvements to the surrounding property. However, you can only claim a deduction for the capital works on residential rental properties built after 17 July 1985. Capital works includes; buildings, extensions, alterations and structural improvements.
- Cleaning – This is the cost of hiring cleaning professionals or purchasing cleaning products for your investment property.
- Council rates – Council rates vary from council to council but are there to help fund community improvements. This can be a one off payment or quarterly but council rates are tax deductible.
- Decline in value of depreciating assets – A valuation of your deductions based on the assets you own in the investment property can be carried out. You will need to provide your accountant with all the information. Depreciating assets found in residential properties include; refrigerators, furniture, hot water systems, cook tops, washing machine etc.
- Gardening and lawn mowing – This includes hiring someone to mow the lawn, trim the edges of the garden and general garden maintenance. Landscaping is not an outright deductible.
- Insurance – Getting insurance to protect yourself and your rental property is tax deductible. This can include the loss of rent, rent default, building damage and theft.
- Interest expenses – You can claim the interest charged on the loan you used to: purchase a rental property, purchase a depreciating asset for the rental property, make repairs to the rental property, finance renovations on the rental property and purchase land on which to build a rental property. However, you can’t claim interest if you incur it after you start using the rental property for private reasons.
- Land tax – Land tax is a tax levied on the owners of land and is based on the value of land. You must complete a land tax registration form. You will be liable for land tax if you own, or part-own: vacant land, a holiday home, an investment property, a company title unit, or a residential, commercial or industrial unit.
- Legal expenses – You can claim the cost of; evicting a non-paying tenant, expenses incurred in taking court action for loss of rental income and defending a damages claim in respect of injuries suffered by a third party on your rental property. You must remember there is a difference between legal expenses and capital expenses.
- Pest control – This includes getting your property sprayed or fumigated by a pest controller and is tax deductible.
- Phone– This includes calls made directly related to the running of your investment property and the installation of a phone line.
- Property agent fees and commissions – A property agent charges fees for maintaining the property on your behalf and these are deductible. The charges for the year-end financial statement, reference-check fees, leasing fees and monthly statement fees are all tax deductible.
- Repairs and maintenance – Repairs refer to the work to make good or remedy defects in; damage to or deterioration of the property for example replacing part of the guttering or windows damaged in a storm or replacing part of a fence damaged by a falling tree branch. Maintenance refers to work to prevent deterioration or fix existing deterioration, for example, painting a rental property or maintaining plumbing.
- Stationary and postage – It’s important you keep a record of all stationary and postage expenses for the year as they are tax deductible.
- Travel undertaken to inspect or maintain the property or to collect the rent – This includes; preparing the property for new tenants, inspecting the property during or at the end of tenancy, undertaking repairs, maintaining the property, collecting the rent and visiting your agent to discuss your rental property.
- Water charges – Water rates are deductible if you pay the water bill.
For more information and advice on purchasing an investment property; please don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
