Tax Deductions for your Investment Property

With tax time just around the corner you should be putting together the figures of everything you are eligible to claim as a tax deduction for your investment properties, which are any expenses incurred whilst owning and maintaining each investment property. Although any rental profit you make will be subject to tax, by claiming the available tax deductions you can reduce your rental profit and ultimately reduce your taxable income to make the most out of your investment.

There may be some you are unaware of:

Advertising for tenants

If your property is available for rent the cost of advertising for tenants is tax deductible. These costs include advertising with local real estate agencies, posting advertisements in newspapers or local publications.

Bank charges

The bank charges on your investment loan account (usually in the form of monthly fees) are tax deductible. Locate your bank statements to ascertain total bank charges for the income year.

Bills

Any utilities that you pay for your investment properties, not your tenants, are tax deductible. These may include water, electricity and gas.

Body corporate fees

These are usually charged on a quarterly basis to cover the costs of maintaining the property.

Borrowing expenses

Borrowing expenses, include, amongst others, investment loan establishment fees, title search fees, costs for preparing and filing mortgage documents, mortgage broker fees, stamp duty charges, valuation fees, mortgage insurance and of course interest costs associated with the investment loan.

Capital Works

You can claim a tax deduction for construction expenditure, or capital works. To maximise your tax deductions you can obtain a depreciation report which will list the year of construction, the construction costs, and the deductible amount each year.

Cleaning

The cost of cleaning professionals and cleaning products for your investment property are tax deductible.

Council rates

Council rates are imposed on landowners to help fund the cost of community infrastructure and services to the local municipality. Councils generally offer a one-off annual payment or a payment plan of quarterly installments and all payments relating to your investment property are tax deductible.

Decline in value of assets

Obtain a depreciation report or alternatively, you will need to supply your accountant with information to support the purchase date and purchase price of each asset. Commonly found depreciating assets are air conditioning units, removable floor coverings, window curtains and blinds, dishwashers, furniture, heaters, hot water systems, refrigerators and freezers, stoves, cook tops and range hoods, swimming pool filtration and cleaning systems, television sets and washing machines. The cost of a quantity surveyor’s report is also tax deductible.

Garden maintenance

Paying a gardener to trim the hedges, lay fertiliser, or mow the lawn at your investment property are tax deductible expenses.

Insurance

Insurance on building, contents, public liability and landlord’s insurance are all deductible. While strata insurance is mandatory it only covers the building so you may want to consider protecting your home contents as well as the risk of defaulting tenants.

Interest on loans

Interest charges on an investment loan are tax deductible but principal or capital repayments are not. Only the interest component directly related to your investment property is tax deductible. If you are paying principal and interest on your investment loan then you will need to calculate the interest component for the year. Locate the bank loan statements for each investment property to ascertain the interest paid for the income year. However if you have the wrong loan structure you may be missing out on potential deductions.

Land tax

Land tax on your investment property is tax deductible. Land tax is a tax levied on the owners of land and it is based on the value of land. You will be liable for land tax if you own, or part-own vacant land, a holiday home, an investment property, a company title unit, or a residential, commercial or industrial unit if you own above a certain sqm of land in total.

Legal costs

Tax deductible legal expenses include the costs of evicting a defaulting tenant and the costs of terminating a lease. You cannot claim the legal fees you pay when you originally purchase the property until it is sold.

Pest control

If you pay for your investment property to be sprayed or fumigated by a pest controller, then you are generally entitled to a tax deduction.

Property agent’s fees and commission

A property agent charges fees for maintaining a property on your behalf. The charges for the year-end financial statement, reference-check fees, leasing fees and monthly rental statement fees are all tax deductible.

Repairs and maintenance

A repair on your investment property is generally tax deductible. Renovations, improvements, replacements and extensions are treated differently to repairs and maintenance. Renovations, improvements, replacements and extensions are generally deductible over more than one year.

Servicing costs

The ongoing servicing costs of a hot water system, an elevator or a pool heating system are tax deductible.

Stationery and postage

Keep a record of all your stationery and postage expenses for the year. Don’t dispose of your records. This is an often overlooked tax deduction by investment property owners.

Telephone calls and rental

Telephone accounts directly related to the running of your investment property are tax deductible.

Tax-related expenses

The cost of obtaining tax advice relating to your investment property from a registered tax agent is tax deductible. Tax preparation fees and accounting charges are also tax deductible.

Travel and car expenses

Investment-related travel and car expenses include airfares, car hire, taxis and accommodation. These expenses are tax deductible if you incur these costs while collecting the rent, inspecting the property, or traveling for some other reason related to your investment property. To claim car expenses, you will need to record the size of your vehicle’s engine as well as the number of kilometers you travelled while maintaining your investment property each year.

This information is a guide only. We recommend you speak with an accountant regarding your individual circumstances.