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Rental Properties and Tax - What You Can Claim?

Last year more than 1.4 million people claimed over $25 billion in rental deductions in their tax returns. Over 200,000 of these people were claiming deductions for the first time.   So, not surprisingly, the ATO has chosen to issue some guidelines explaining their position on claiming deductions for rental properties.

This year the Tax Office will write to around 110,000 people who have purchased rental properties in the past 12 months with advice on claiming rental property deductions.

The following are some of the issues that the ATO will focus on.

What you can claim as a immediate deduction

There are a number of rental property expenses that can be claimed as an immediate deduction.

These include:

Genuine repairs such as:

  • repairing part of the guttering or windows damaged in a storm or repairing part of a fence damaged by a falling tree branch
  • maintaining plumbing, repairing electrical appliances or machinery as well as painting, oiling, brushing or cleaning something that is otherwise in good working condition

Legal expenses BUT limited to:

  • preparing a lease agreement with your tenant
  • evicting a tenant

Interest on loans to:

  • purchase a rental property or purchase land to build a rental property
  • purchase a depreciating asset for the property like an air conditioner
  • finance renovations like a deck
  • make maintenance repairs or repair damage to the property.

What needs to be claimed over a number of years

Expenses that are deductible over a number of years include most borrowing costs and the cost of depreciating assets and structural improvements.

Borrowing costs can include:

  • stamp duty charged on the mortgage
  • loan establishment fees, fees for a valuation required for loan approval and lender’s mortgage insurance
  • title search fees charged by your lender, costs of preparing and filing mortgage documents and mortgage broker fees.

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.

Major Property Work

Major renovation costs and costs to repair damage, defects or deterioration upon purchasing a property can’t be claimed as an immediate deduction. These costs generally must be claimed as either a deduction for decline in value over the asset’s effective life, or as a capital works deduction over 25 or 40 years.

What you can't claim

To help you avoid some common mistakes here is a list of things you can’t claim:

  • deductions for rental properties that are not genuinely available for rent
  • travel expenses when the main purpose of the trip is a personal holiday
  • stamp duty charged by your state/territory government on the transfer of the property title or leasehold interest.   These costs form part of the capital costs for CGT purposes
  • insurance premiums where under the policy your loan will be paid out in the event that you die, become disabled or unemployed
  • borrowing expenses on the portion of a loan you use for private purposes
  • solicitor's fees for the purchase of the property and the preparation of loan documents.   Again these are capital costs for CGT calculations.
  • legal costs associated with resisting land resumption or defending your title to the property.   Once again, these are capital costs for CGT.
  • interest on a loan you use to buy a home that you don’t use to produce income or when you start using the rental property for private purposes
  • interest on the portion of the loan you use for private purposes like buying a new car.

More Information

The Tax Office website has detailed fact sheets outlining what you can and can’t claim for your rental property.   If you have any specific queries, please contact your PRT Adviser.

Disclaimer: The material contained in this publication is in the nature of general comment and information only and neither purports, nor is intended, to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this publication without taking appropriate professional advice.