As an owner of a rental property, you are entitled to claim tax deductions for some of the expenses you incur while your property is rented or available for rent.
To work out what you can and cannot deduct from your tax, you need to understand which expenditure category your costs fall into.
The three categories are:
An expense you cannot claim a deduction for.
An expense you can claim an immediate deduction for in the income year you incur the expense.
An expense you can claim deductions for over a number of income years.
Non-deductibles
Expenses you cannot claim deductions on include:
Acquisition and disposal costs of the property e.g. purchase cost, conveyancing costs, advertising expenses and stamp duty on the transfer of property.
Expenses not actually incurred by you, such as water or electricity charges paid for by your tenants.
Expenses that are not related to the rental of a property, such as expenses connected to your own use of a holiday home that you rent out for part of the year.
Immediate deductions
Immediate deductions are expenses you can claim in the same income year you incurred the cost, the proviso being they were incurred at your expense (not your tenant's expense).
Immediate deductions would include expenses like:
|
| Advertising for tenants | Bank charges | Body corporate fees and charges |
| Cleaning | Council rates | Electricity and gas |
| Gardening and lawn mowing | In-house audio and video service charges | Insurance |
| Interest on loans | Land tax | Lease document expenses |
| Legal expenses | Mortgage discharge expenses | Pest control |
| Property agent's fees and commissions | Quantity surveyor's fees | Repairs and maintenance |
| Secretarial and bookkeeping fees | Security patrol fees | Servicing costs e.g. water heater |
| Stationery and postage | Telephone calls | Tax preparation expenses |
| Travel and car expenses | Water charges
|
Longer-term deductions
There are expenses you incur on your rental property that you can claim tax deductions for over a number of income years. These deductions fall into the following categories:
- Borrowing expenses.
- Depreciating assets.
- Capital works deductions.
Borrowing expenses
Borrowing expenses are expenses directly incurred from taking out a loan on your property. It includes loan establishment fees, title search fees and costs for preparing and filing mortgage documents.
Also included are costs that you incur based on your lender’s requirements e.g. lender’s mortgage insurance.
Borrowing expenses do not include interest expenses or insurance policy premiums.
Depreciating assets
The Australian Tax Office (ATO) states that you are entitled to deduct an amount equal to the decline in value for an income year of a depreciating asset that you held for any time during the year.
Examples of depreciating assets include:
- Floor carpets depreciated over 10 years.
- Window curtains depreciated over six years.
- Solar powered generating systems depreciated over 20 years.
Capital works deductions
Capital works deductions refer to certain kinds of construction expenditure. These deductions would generally be spread over a 25 or 40 year period.
Capital works deductions would include things like;
- a building or an extension
- alterations to the property, e.g. removing or adding an internal wall
- structural improvements to the property
You are unable to claim capital works deductions until construction is complete, and your total capital works deductions cannot exceed the construction expenditure. You may also only claim deductions for the period during the financial year that your
property is rented or available for rent.
For a detailed explanation of the expenses you can and cannot claim tax deductions for, please refer to the ATO’s Guide for rental property owners.
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