Jun 20, 2023
The ATO will again focus on rental property claims.
It is important to note that before claiming any rental property deductions:
- You must have actually incurred the expense; and
- Where the expense is partly of a private nature, make sure that you are only claiming a part of the cost that can be attributed to an income producing purpose; and
- You must be able to substantiate the expense which means retaining copies of invoices paid or other records of evidence.
Below are common tax deductions that property owners should be claiming to ensure they are maximising their return:
Loan Interest
Mortgage interest is often the most significant investment property deduction claimed. If you have refinanced your loan during the year, make sure that you have only claimed the proportion of the interest that relates to the investment property and not for any private elements. It is also important to note that you are unable to claim any tax deduction for principal loan repayments.
Repairs & Maintenance or Renovations & Replacements
Landlords need to understand the distinction between classifying an expense as being either a repair or maintenance, or a replacement/improvement of an existing asset.
You can claim an immediate deduction for repairs that are a result of normal wear and tear. For example, immediate deductions are available for replacing the washers in a leaking tap. An immediate deduction would also be available for preventative maintenance such as re-oiling an outdoor deck.
If you were to replace an asset in a rental property such as a washing machine, then you would need to claim the cost as a depreciation deduction over the useful life of the asset. Further, if you undertake major works such as renovating a kitchen or bathroom, or adding on an extension, the associated costs may be claimable as a capital works deduction over a number of years rather than claimed outright.
Depreciation
Deductions are available for the decline in value of depreciating assets in your investment property. However, any second hand assets acquired after 1 July 2017 are no longer eligible to be claimed. Second-hand depreciating assets are depreciating assets previously installed and used. We recommend for any property purchase that a quantity surveyors report be obtained to determine the amoun of eligible claims.
Capital Works
You may be able to claim a capital works deduction for the cost of the construction of your investment property depending upon when the property was built. Alternatively you may be able to claim deductions for renovations that have subsequently been completed. We recommended that you obtain a Quantity Surveyor’s report to determine the amount of your eligible claims.
If you need any further information including recommendations on choosing a Quantity Surveyor, please contact us.
Rates & Strata Fees
Council rates, water rates and land tax can be claimed as a deduction in the year they are paid provided the property was income producing during the relevant period.
Similarly, for strata title properties, you may be able to claim associated levies charged by the Strata Corporation for on-going management and maintenance of the property.
Insurance
You can claim the cost of insurance premiums paid relating to your investment property. This might include building insurance, contents insurance if tenanted fully furnished and landlords insurance if applicable.
If you need assistance with these issues we are here to help.