Get yourself tax ready



With the Australian Taxation Office (ATO) revealing it will speak to more than 350,000 taxpayers this year in a bid to crack down on dubious tax returns, it’s now more important than ever to understand exactly what can and can’t be claimed.

While property investors are privy to a range of specialised tax breaks, there are also a lot of things that aren’t deductible or shouldn’t be claimed and it’s important to know the difference. So, what exactly can you claim as a property investor?

Some of the more common expenses that you can claim in relation to your property investment include:

Cleaning and gardening costs. General repairs and maintenance. Travel to and from the rental property (within reason). Advertising for tenants. Real estate management fees. Council and water rates. Insurance including building and contents. Interest on your investment loan.

You can also claim the cost of household items that your tenants have access to, including white goods, furniture and air conditioners. Of course, it’s important to note that the full cost of each item can’t be claimed as these items are subject to depreciation. In other words, the relevant deductions have to be claimed over a period of years based on the useful life of the item in question.

But just as there are a whole heap of expenses you can claim as a property investor, there are certain expenses that aren’t deductible.

For example, building and construction expenses aren’t deductible, but they can be claimed under the special building write-off rule.

Broadly speaking, if the rental property was built after September 15, 1987, you can claim the portion of construction expenses that remained unclaimed at the date you acquired the property. This cost can be written off at 2.5 per cent each year over 40 years. But you have to know the value of the construction work and when it was carried out. You can ask the previous owner to supply the costs, or engage a suitably qualified expert, such as a quantity surveyor, to provide an estimate. In the case of a new dwelling, the builder or a quantity surveyor should be able to provide you with the relevant cost details.

Other outgoings or expenses that can’t be claimed include any stamp duty paid on the property, the valuer’s fees on acquisition, advertising costs on the sale and legal expenses that are generated during the purchase and sale of the property. While these costs aren’t tax deductible, they can all form part of the cost base of a property if subsequently sold, for capital gains tax purposes.

With so much to consider, preparing your tax return as a property investor can seem a touch overwhelming. It’s for this reason that it’s so important to deal with a professional.
An accountant will be able to help you identify exactly what you can and can’t claim and what can be written off down the track. In addition, it’s important to consult your mortgage broker and make sure your investment loan is structured in such a way that you can maximise your tax deductions.

One of the most common mistakes investors make is bundling all their properties under the one loan and not clearly defining what percentage of their loan funds each property.

In other words, if your owner-occupied property is funded via the same mortgage as your rental property, it’s important for you to clearly state exactly what portion of your loan is related to your existing owner-occupied property and what portion is related to your investment property.

Having a clear separation will help you at tax time as you’ll be able to work out what proportion of the interest can be claimed as an expense against your rental income.

Don’t try and claim all of the interest on the loan, as this can end badly if you’re ever audited by the ATO. And, given that the ATO has made it crystal clear that property investors will face more scrutiny this tax time, it’s important to live by the letter of the law.


About Jessica Darnbrough

Jessica Darnbrough is the company spokesperson for Mortgage Choice and is responsible for supporting and solidifying the company's strong and professional brand.

Original author: Jessica Darnbrough

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