7 investment property tax deductions landlords can make right now
It’s tax time and that means deductions and, hopefully, refunds. For property investors, your tax return has an added layer of complexity to it. However, landlords have a variety of ways to minimise their annual tax bill, with investment property deductions sometimes proving the difference between negative and positive cash flow.
It should be noted here that landlords and investors may only claim deductions on their property when the property is tenanted or genuinely available for rent. Like any deduction, property investors can only claim the portion of an expense that was used for business purposes, and must keep records to prove these expenses. You can claim for things as small as stationery, phone contracts, internet and electricity usage – as long as you only claim for the portion of these expenses that relate to your investment property. Then you can claim for things as large as home improvements and capital works.
Following are the top 7 deductions, landlords and property investors should be aware of when tax time comes around.
A repair replaces of fixes a part of something that already exists on the property. It usually restores something to its original form or as close to original as possible. When repairing an appliance or fixture, you can fix any damage caused by regular wear and tear, by harm (accidental or deliberate) or the effects of natural causes. Repairs are generally partial in nature. For example fixing the fan in your oven is a repair, but replacing the entire oven is not. If you are using your investment property to generate income, then you can claim an immediate deduction on repairs. However, you need to be aware that there is a difference between repair and improvement. A claim on improvements is not a claim you can make immediately.
Generally an improvement makes a fixture function more efficiently than it did in its original state. It will also increase the property’s market value or bring in a higher rent. Improvements lead to a more valuable condition, e.g., remodelling your kitchen or extending the home. Improvements are usually considered capital works, so you may be able to claim a capital works deduction. This can be claimed over a number of years.
3. Repairs vs initial repair
Repairs made to any defective items during the time that the property is producing income are tax deductable. Initial repairs however, are not. An initial repair is one that you make when you acquire your property before you have started to rent it out.
4. Restoration repair
A restoration done gradually and over a longer period of time could be classed as a series of deductable repairs. In order for it be considered as such you need to keep in mind a few important factors.
- the nature and scale of the work in relation to the proportion of the property
- the period of time it takes to complete. (If it’s over a short amount of time, it’s likely to be considered an improvement.)
- is it done as an on-going project (smaller deductable repairs) or in one go (improvement)?
5. Capital works deductions
You can make capital works deductions on rental properties. These are spread over 25-40 years. They cannot exceed the construction expenditure and you cannot claim a deduction before the construction is complete.
These deductions apply to capital works such as:
- alterations (such as removing an internal wall)
- building or extension (such as adding a pergola or patio)
- structural improvements (such as adding a retaining wall)
6. Travel costs
Property investors can no longer claim the costs of travel to inspect a rental property or carry out repairs. However, you are excluded from this rule if you are carrying on a business of property investing.
7. Legal expenses
Legal advice and document costs relating to rental activities are tax-deductible. For instance, if you must evict a tenant (remember tenants are currently protected due to COVID-19 and it would be unwise to start eviction proceedings at this stage), or you are going to court over unpaid rent, you may claim these costs as well as the costs of document preparation. Investors can offset any losses they make on an investment property against their assessable income. As such, if an investment property’s rental income is less than its expenses, the landlord can deduct this loss from their taxable income.
Just for good measure, here are other deductions you can make, to put money back in your pocket:
- Rental advertising costs
- Loan interest – the interest charged on your loan or investment property
- Council rates
- Land tax
- Strata feed
- Building depreciation
- Appliance depreciation
- Garden and maintenance
- Accounting and bookkeeping fees
- Pest control
And don’t forget, you may also be eligible for a capital gains discount of 50 per cent if you are selling the property and have held it for longer than 12 months.
This update is not financial advice. This article is general news and information.
Home Loans: The comparison rates are based on a secured loan amount of $150,000 and a term of 25 years.
Personal Loans: The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless otherwise indicated in the product name with^, in which case, the comparison rate is based on a loan of $10,000 and a term of 3 years. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise.
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.
The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements
InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.
The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.