Seek professional advice
It's important to get professional tax advice tailored to your circumstances as mistakes could mean losing concessions or bring you under Tax Office scrutiny. The cost of having your tax return professionally prepared is tax deductible.
A sensible golden rule is to keep good records for your investment property. Keep expenses for your home separate from those relating to the rental property, and hold onto the receipts for any expenses you claim on tax. These will be needed to prove your deductions if you’re ever subject to a Tax Office audit.
When it comes to investing, the term 'gearing' refers to borrowing to buy an asset. Most investors use some gearing in the form of their mortgage to fund their rental property. The loan interest is often a major expense but it can be claimed as a tax deduction when the property is tenanted or available to let, and this can significantly reduce the cost of the loan.
Ongoing costs that can be claimed on tax
Whether your investment property is negatively or positively geared, you can claim a variety of property-related costs as long as the property is tenanted or available for rent. If the property is taken off the market for a period, for example, to undertake renovations, you won't be able to claim the costs that relate to this time span.
The following expenses can normally be claimed on tax:
- Advertising for tenants, property management fees
- Accounting fees
- Borrowing costs like valuation fees, loan establishment/ registration fees or LMI premium (these may need to be claimed over a period of five years)
- Interest payments and ongoing loan fees
- Stationery, phone costs, book keeping fees and any travel relating to the property
- Council rates, body corporate fees, land tax and strata fees
- Repairs, maintenance, pest control, cleaning and gardening
- Electricity, gas and water (part of these costs may be paid by the tenant in which case they cannot be claimed by you, the landlord)
- Insurance premiums for building, contents, public liability and landlord insurance
- Depreciation of items such as stoves, fridges and furniture plus the building
Most of the above expenses are normally deductible immediately in the year they are paid, while others such as borrowing costs must be claimed over a period of years.
Costs associated with the purchase of your property including legal fees and stamp duty can only be claimed when you determine any capital gains on sale of the property. Always seek tailored advice from a qualified accountant or tax agent when making a claim for rental property costs.