A Guide to Deductible Expenses

The owners of rental properties can claim tax deductions for few of the expenses they incur while their property is available for rent or is being rented. If you own a rental property, you should be aware of the tax deductions that you can claim to acquire more income.


Expenses on which you may be able to claim deductions include:

  • Bank charges
  • Advertising for tenants
  • Body corporate charges and fees
  • Council rates
  • Cleaning
  • Lawn mowing and gardening
  • Insurance: contents, public liability, building
  • Land tax
  • Interest charged on loans
  • Lease document expenses
  • Legal expenses
  • Pest control
  • Mortgage discharge expenses
  • Commissions and fees of property agents
  • Maintenance and repairs
  • Bookkeeping and secretarial fees
  • Service costs
  • Postage and stationary
  • Expenses related to tax
  • Car and travel expenses
  • Water charges


We’ll highlight a few of these deductible expenses in more detail below to help you understand how you can claim tax deductions on them.


Body Corporate Charges and Fees

For purposes of taxation, body corporates are treated like public companies, but they are not classified as non-profit entities. Although the authorities, functions, duties and powers of body corporates are different under various acts, they generally include:

  • Controlling, managing and administering the common property, properly maintaining it, obtaining insurance on it and the building, keeping books and records of account, levying proprietors and depositing those levies safely in nominated funds.
  • Imposing a levy on proprietors and owners of the body corporate lot units.

Deduction can be claimed on body corporate charges and fees incurred by you on your property that is available for rent or is rented. You may incur body corporate charges and fees for covering day-to-day maintenance and administration costs or these charges might be applied to a “special purpose fund”.

You can claim deductions on the payments made to administration funds of body corporate. However, if you’re required by the body corporate to pay in a special purpose fund for a certain capital expenditure, then these payments aren’t deductible.


Interest Charged on Loans

Deduction can be claimed on the interest that is charged on the loan taken for purchasing a rental property. However, the purchased property should be available for rent or rented in the same income year for which you’re claiming a deduction. If you use the purchased property as a private property, you won’t be able to claim a deduction on the interest. Deduction can also be claimed on interest on loan that’s taken for purchasing depreciating assets, repairs or renovations.


Land Tax

Deduction can also be claimed on land tax liabilities depending on the time when the liability arises.  In several states, the year in which you use the property for relevant purpose will determine when you’re liable. If land tax assessments are received in arrears, you cannot have the land tax deducted in the same income year in which the arrears are paid.


Legal Expenses

You can claim a deduction on some of the legal expenses you incur while producing rental income. These include:

  • The cost of getting court involved to recover the lost rental income
  • The cost incurred to evict a tenant who is not paying the rent
  • The cost incurred to defend damage claims for injuries to a third party, suffered on your property


Mortgage Discharge Expenses

These are the costs incurred to discharge a mortgage, excluding the payments of interest and principal. You can have these costs deducted in the same income year in which they’ve incurred.  Penalty interest payments (amounts you may pay to the lender for accepting a loan’s early payment) may also be included in mortgage discharge expenses.


Property Agents Commissions or Fees

Deductions can be claimed on the commissions and fees paid to a real estate or property agent for inspecting, managing or collecting rent for you on your rental property. Deductions cannot be claimed on fees or commissions you pay to an agent for selling your rental property. Also, you cannot claim deductions on buyer’s agent fee that is paid to an agent to locate you a rental property available for purchase.


Maintenance and Repairs

You may be able to claim deductions for expenses incurred by you to make repairs on your rental property. However, the repairs you make should directly relate to damage or wear and tear that occurred because you rented out your property.

Generally, repairs involve a renewal or replacement of a broken or worn out part. For example, if you replace damaged or worn curtains or carpets, it’s considered a repair. Maintenance involves keeping your property in a condition that’s suitable for tenants.

You cannot claim deductions on extensions, renovations and alterations; replacement of a whole structure and particular unit of your property and initial repairs like in remedying damage and defects that existed when the property was acquired by you.


Car and Travel Expenses

If the purpose of your travel is inspection or maintenance of your property or collection of rent, you may claim deduction on the travelling costs. Full deduction can be claimed if the purpose of your trip relates solely to your rental property. However, if other purposes are involved, you might not be given a deduction or might only get a half deduction.

In case you take a flight for inspecting your property, spend the night in a hotel and return the next day, you’ll be allowed to claim a deduction on all the accommodation and air fare expenses if the only purpose of the trip was the inspection of the rental property.


Local Government Expenses

A deduction can also be claimed on local government levies and rates. If you don’t pay the local government charges and rates for your rental property and become liable for paying interest charges, you can claim those interest charges as a deduction.


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