Rental Properties – Australian Tax Deductions

From the day you first purchase a property for rental, you will have tax deductions. So all paperwork needs to be kept. One of the first pieces of information you will receive is a settlement statement from your conveyancer, this will have the purchase price of the property stamp duty and pro rata amounts for property rates and taxes.

The conveyancer letter has 2 types of expenses, one is capital which includes the purchase price of the property, stamp duty, registration of mortgage, search and settlement fees and the conveyancer or legal fees. These are not tax deductible and form part of the capital gain calculation at the sale of the property.

The second expense on the conveyancer letter is the pro rata amounts for council rates, water rates, body corporate fees and other fees or levies that your State may charge. The expenses are tax deductible and will need to be included on you tax return.

When purchasing a rental property most will borrow a substantial part of the properties value from a financial institution. Of course, financial institutions charge up-front application and legal fees for your loan. If these amounts are less than $500 then they can be claimed in the first year, otherwise, the borrowing costs will need to be claimed over a 5 year period.

Now we come to the day to day running of the property, you will receive rent from your tenants, which is included as income, you may also receive a reimbursement from the tenant for excess water usage, this too is income. If you were unlucky and had a bad tenant and needed to make a claim against the bond or your insurance, the amounts received will also be included as income. Most claims from insurance and the bond will also have a corresponding deduction for the repairs.

General rule of thumb with any tax deduction is that it must be relevant to an income producing activity, the most common deductions are;

  • Advertising for tenants,
  • Bank charges,
  • Cleaning,
  • Gardening,
  • Interest payments on a loan,**
  • Monthly or annual Loan fees,
  • Borrowing costs,**
  • Insurances,
  • Land tax,
  • Body corporate/Strata fees,**
  • Lease document expenses,**
  • Legal expenses,**
  • Council rates,
  • Property management fees,
  • Pest control,
  • Quantity surveyor’s fees,
  • Bookkeeping fees,
  • Security,
  • Repairs and maintenance,**
  • Water rates,
  • Emergency services levy,
  • Rubbish removal,
  • Tax related expenses,
  • Travel and car expenses in relation to the property,**
  • Depreciation,**
  • Phone Calls to tenants or property manager,
  • Stationery (rent books),
  • The cost of the home office.

Some of the above expenses marked with the double asterisk** will need to be expanded on, which will be the subject matter in future blog posts. To make sure you don’t miss out on future posts, please subscribe in the to the right of the website to receive notifications.