The ATO has constructed a checklist of tips to help investment property owners correctly claim rental property deductions at this year-end.
Claiming property deductions is often a complex and complicated process. Every rental property is different, so it is always a good idea to seek the help of a tax professional for specialised advice.
Immediate deductions
Some expenses may be immediately deductible in the income year in which they are incurred. For example, taxpayers may be able to claim an immediate deduction for interest on a loan used to:
• purchase a rental property
• purchase land to build a rental property
• purchase a depreciating asset for the property, such as an air conditioner
• to finance renovations or home improvements
Taxpayers can claim a deduction for the costs paid to repair and maintain their rental property. For example, replacing part of the guttering or windows damaged in a storm or repairing an electrical appliance.
Tenancy costs such as the preparation of a lease agreement, or costs associated with evicting a tenant are also immediately deductible expenses.
Deductions over a number of years
Other expenses can be claimed over a number of years, including the cost of depreciating assets, structural improvements and most borrowing costs.
Assets that are part of the property such as stoves, air conditioning and hot water systems can be claimed over a number of years as a ‘decline in value’ deduction.
Taxpayers are also able to claim the cost of building, construction and structural improvements made by the current or previous owner as a capital works deduction. For example, adding a room or constructing a retaining wall or fence.
Another example of expenses that need to be claimed over a number of years is borrowing costs such as stamp duty charged on a mortgage, loan establishment fees and title search fees charged by the lender.
If these amounts are less than $100 in total they can be deducted immediately, otherwise they are generally deductible over five years or over the term of the loan, whichever is less.
Deductions that cannot be claimed
Taxpayers are unable to claim deductions for the following expenses:
• acquisition and disposal costs of the property
• expenses not actually incurred by the taxpayer, such as water or electricity charges borne by the tenant
• expenses that are not related to the rental of a property, such as expenses connected to the private use of a holiday home that is rented out for part of the year
Article supplied by Marsh Tinknell | Chartered Accountants
