According to the ATO there are around 1.9 million property investors in Australia and 2.7 million rental investment properties 1. Surprisingly, many landlords fail to claim all allowable tax deductions simply because they are unaware of all the expenses they can claim as a tax deduction.
There are two types of investment property strategies positively geared or negatively geared.
Positively geared properties – where rental income is higher than interest payments and tax deductible outgoings. Tax is likely to be paid on the net income.
Negatively geared properties – where rental income is less than interest payments and tax deductible outgoings. The loss can be off set against other income earnings, reducing assessable income and therefore your tax payable.
The strategy most suited to you will be dependent on your individual circumstances and your long term investment goals and objectives.
More recently, proposed tax changes to negative gearing has been a political hot potato. Let’s face it – nobody likes the goal posts shifted half way through the match! Whatever the outcome, property investment is likely to continue being a popular path to
wealth creation for Australians – even if the scales tip in favour of positively geared property investment.
So… If YOU have an investment property are you sure you are claiming all possible deductions?
Regardless of the property investment strategy you adopt all investors will see benefits in claiming all possible deductions. As a starting point review the lists below and ensure you have paperwork for the expenses you have incurred.
Initial borrowing expenses
stamp duty charged on the mortgage
loan establishment fees
title search fees charged by your lender
costs for preparing and fi ling mortgage documents
mortgage broker fees
fees for a valuation required for loan approval
lender’s mortgage insurance – this is insurance taken out by the lender and billed to you
Interest is usually the largest tax deduction, particularly in a negative gearing arrangement. You can claim the interest charged on the loan used to:
purchase a rental property or land to build a rental property
purchase a depreciating asset for the rental property (eg an air conditioner)
make repairs to the rental property
finance renovations on the rental property
advertising for tenants
body corporate fees
gardening and lawn mowing
legal expenses for preparing a lease or evicting anon-paying tenant
property agent fees or commissions
repairs and maintenance
water charges (if not paid by the tenant)
You may be able to claim a deduction (usually at the rate of 2.5% per year in the 40 years following construction) for the construction cost of:
structural extensions such as a garage or patio
structural alterations such as adding an internal wall
structural improvements such as a gazebo, carport, sealed driveway, retaining wall or fence
The plant and appliances in your property reduce in value over time as a result of normal wear and tear. The ATO allows you to claim deductions for this reduction in value each year. In order to substantiate these deductions you should
consider getting a professional quantity surveyor’s report for applicable capital works and depreciation deductions during the life of your property.
Most importantly… make sure you keep all receipts as
no receipt = no deduction.
The above checklist should get you started.
For more information…
Mortgage & Finance Broker
1. ABS Census 2011