Investment Property Tax Deductions


Jun 15, 2022

Investment Properties

The ATO will again this year 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 ensure they are 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 a proportion of the interest that relates to the investment property and adjusted for any private elements. It is 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 a fixing the washers in a leaking tap. The immediate deduction is also available for preventing or fixing the deterioration of an item such as re-oiling a deck.

If you were to replace an asset in a rental property such as 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 in full.

Depreciation

You may be able to claim a depreciation deduction for the cost of the construction of your investment depending upon when the property was built, alternatively you may be able to claim this write off for renovations that have since been carried out. It is recommended to often obtain a Quantity Surveyor’s report to ensure that you are maximising these deductions.

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 Corporation.

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 any further information including recommendations on choosing a Quantity Surveyor, please contact us.


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