We have seen in our previous posts what expenses you can claim and what you can’t claim as a deduction for rental property.

Well, having seen this, is time now to talk about important aspects you must consider for the moment you want to rent your property and claim expenses.

Property genuinely available for rent

This means that the expenses you want to claim may be deductible for periods when the property is not rented out. You need to provide that by the time you incurred in some expenses the property was genuinely available for rent, what could be:

  • the property was advertised, giving it broad exposure to potential tenants.
  • considering all the circumstances, you as a tenant was reasonably likely to rent the property.

Negative gearing

Your rental property will be ‘negatively geared’ when the deductible expenses (including interest on the loan borrowed to finance the property) exceed the income earned from the property.

The overall tax result of a negatively geared property is a net rental loss. In this case, you may be able to claim a deduction for the full amount of rental expenses against your rental and other income – such as salary, wages or business income – when you complete your tax return for the relevant income year. Where the other income is not sufficient to absorb the loss it’s carried forward to the next income year.

Apportioning expenses

Consider that you will need to apportion your expenses to determine the deductible amounts if:

  • your property is available for rent for only part of the year
  • only part of your property is used to earn rent
  • you rent your property at non-commercial rates.

Pre-paid expenses

Pre-paid expenses are those you payed for services extending beyond the current income year, such as payment of an insurance premium on 1 January that provides cover for the entire calendar year.

You can generally claim an immediate deduction in the current income year for:

  • pre-paid expenses of less than $1,000
  • expenses of $1,000 or more where the service period is 12 months or less (such as payment of an annual insurance premium part way through an income year).

A prepayment that doesn’t meet these criteria may have to be spread over two or more years.

Keeping records for rental properties

Keeping records is really important to avoid a future issue with the ATO, so make sure you keep records of any expenses you pay, such as invoices, receipts and bank statements for all property expenditure. Also, keep records to proof that your property was available for rent, such as rental listings.

More Information

For more information please contact our professional Precent Tax and Accounting team at (+61) 2 8317 1281, or send us a message to [email protected].