According to the ATO, you can claim as a deduction expenses relating to your rental property but only for the period your property was rented or available for rent. There are two types of expenses, the ones you can deduct immediately and the ones you can deduct over a number of years.
1) Expenses deducted immediately: Management and maintenance costs.
- Advertising for tenants
- Body corporate fees and charges
- Council rates
- Water charges
- Maintaining plumbing.Land tax
- Gardening and lawn mowing
- Pest control
- Insurance (building, contents, public liability)
- Property agent’s fees and commission
Repairs and maintenance
Repairs means the work to make good or remedy defects, damage or deterioration of the property. Some examples are:
- Replacing part of the guttering or windows damaged in a storm
- Replacing part of a fence damaged
- Repairing electrical appliances or machinery.
Maintenance means the work to prevent deterioration or fix existing deterioration. Such as:
- Painting a rental property
- Oiling, brushing or cleaning something that is otherwise in good working condition.
You can claim the interest charged on the loan you used to:
- Purchase a rental property
- Purchase a depreciating asset for the rental property (for example, to purchase an air conditioner for the rental property)
- Make repairs to the rental property (for example, roof repairs due to storm damage)
- Finance renovations on the rental property, which is currently rented out, or which you intend to rent out (for example, to add a deck to the rear of the rental property)
- Purchase land on which to build a rental property.
Some legal expenses
- Evicting a non-paying tenant
- Expenses incurred in taking court action for loss of rental income
- Defending a damages claim in respect of injuries suffered by a third party on your rental property.
2) Expenses deducted over a number of years
Depreciation (decline in value of depreciating assets)
When you purchase a rental property, you also purchase separate depreciating assets, such as air conditioners, stoves, carpet, furniture, appliances and other items.
Each depreciating asset can be attributed a cost to enable a claim for decline in value, or ‘depreciation’. The decline in value of each asset starts when you first use it, or install it ready for use – it doesn’t matter whether it is for a private purpose or to earn assessable income
Capital works expenditure
Deductions for construction expenditure (capital works deductions) on residential rental properties are generally spread over a period of 40 years. Deductions for capital works include:
- a building or an extension – for example, adding a room, garage, patio or pergola
- alterations – such as removing or adding an internal wall.
- structural improvements – such as adding a gazebo, carport, sealed driveway, retaining wall or fence.
The deduction is at the rate of 2.5% or 4% (adjusted for part-year claims) depending on the date the capital works began. Your total capital works deductions can’t exceed the construction expenditure. No deduction is available until construction is complete.
You can claim a deduction for borrowing expenses associated with purchasing your property, such as loan establishment fees, title search fees, and costs of preparing and filing mortgage documents. Interest on the loan is not a borrowing expense, and can be claimed immediately.
If your total borrowing expenses are more than $100, the deduction is spread over five years or the term of the loan, whichever is less. If they are $100 or less, you can claim a full deduction in the income year they are incurred.
If you need any help with your rental property expenses, please feel free to contact our professional Precent Tax and Accounting team at (+61) 2 8317 1281, or send us a message to [email protected].