If you own a rental property, then you should know that there are a variety of expenses that you can claim at the time of tax return. These must be related to the costs of generating the rental income and at no circumstance, should include costs for private use.
In this post, we’ll share the variety of expenses that you can claim and those that you cannot claim. So, let’s start with the ones that cannot be claimed:
Expenses you can Claim
Expenses that you can commonly claim on your rental property include:
- Council rates
- Bank charges
- Borrowing expenses
- Water charges
- Postage and stationery
- Property agent commissions and fees
- Maintenance and repairs
- Phone
- Pest control
- Land tax
- Legal expenses
- Interest expenses
- Insurance
- Lawn mowing and gardening
- Cleaning
- Capital works
- Body corporate charges and fees
- Advertising for tenants
There are a few considerations when claiming expenses for an investment property.
Property That is Genuinely Available For Rent
If your property isn’t rented out, the expenses might be deductible provided that you made the property genuinely available for rent. What this means is that you advertised the property and gave it exposure so that potential tenants might rent it and given the circumstances, tenants are likely to rent the property.
If these factors are absent, it means that the owner didn’t make an effort to rent out the property and doesn’t have an intention to generate income through the property. Some factors that indicate that the owner has not made a genuine intention of renting out the property include:
- Advertising the property in such ways that its exposure is limited and the word doesn’t reach potential tenants.
- The condition, accessibility or location of the property is such that tenants would not want to rent it.
- Stringent conditions have been placed by you that restrict tenants to consider renting the property.
Apportioning Expenses
If you made your property available for rent for only some part of the year or if only a part of your property was used to earn rent or if your property was rented out at non-commercial rates, then your expenses must be apportioned to determine the deductible amounts.
Property Available for a Part of the Year
If your property is used for both income and private purposes, a deduction can only be claimed for the portion of expenditure that is related to the income purpose.
Only Some Part of the Property is Rented Out
If you only rent a part of your property, the deduction can only be claimed on the part of your expenses that are related to the rental income.
Non-Commercial Rates
If you rent your property out at a rate lower than normal rates, then the amount of deduction that can be claimed will be limited.
Pre-paid Expenses
There are some services that extend beyond the income year. For example, when you pay for an insurance premium on the first of January and it provides coverage for the entire year. The expenses that provide for such services are called pre-paid expenses.
If the pre-paid expense is less than $1,000, you can claim a deduction on it in the current income year. The same can be done for expenses of $1,000 or more provided that the period of service is less or equal to 12 months.
Negative Gearing
If the deductible expenses of your property exceed the income that you’re earning from it, then your rental property will be termed as ‘negative gearing’. In case of negative gearing, you might be able to claim a deduction for your rental expenses against your rental income and other income. If the other income isn’t sufficient to absorb the loss, it will be carried forward to the next year.
Expenses that can’t be Claimed
- Those expenses that you didn’t pay for. For example, utility charges that your tenants pay.
- Disposal and acquisition costs. This includes the cost of purchase, advertising costs, stamp duty and conveyance costs.
- You cannot claim GST for anything that you purchased to lease your property — since GST is not applicable on residential rental properties. However, when the expense is claimed as a deduction, you can claim the actual amount you paid (including GST).
If you are facing problems with your loan application or want to learn more about genuine savings, get in touch with Josh Financial Services as our experts can help you work through your individual situation.
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