Tax Deductions for Investment Properties
Several deductions are available to property investors to minimise the tax being paid. Unfortunately, there are areas relating to tax deductions that are unclear to some individuals, resulting in opportunities being missed to get the most out of their investments.
To help identify what you can legitimately claim, below is a list of common tax deductions relating to investments properties.
Generally, management and maintenance costs can be immediately claimed against your current year’s income; some examples are:
- Advertising for new tenants
- Loan interest and ongoing fees
- Body corporate fees, water and council rates
- Land tax
- Cleaning, pest control, gardening, and lawn mowing
- Agents fees and commission
- Travel expenses to inspect the property or collect rent
(Note: In the latest budget announcement, the Government noted that travel deductions relating to inspecting, maintaining, or collecting rent will be disallowed from 1 July 2017. As at publishing, the legislation for this measure is still being developed)
The cost for capital works, borrowing expenses, and depreciation of assets can be deducted over several income years.
- Expenses incurred for the construction and other capital works on investment properties can be claimed as a tax deduction over a period of 40 years. The type of construction, and when it commenced will determine the rate of the deduction that will be allowed
- Loan establishment fees, title search fees, stamp duty charged on the mortgage, costs of preparing the mortgage documents, and mortgage broker fees, can be claimed as borrowing expenses.
Note that if the borrowing expense is less than $100, the deduction can be claimed in full in the income year it was incurred. Alternately, if the borrowing cost exceeds $100, the tax deduction is spread over a period of 5 years, or the term of the loan (whichever is shorter)
- Depreciating assets obtained in the purchase of the property and those purchased after acquiring the property can be claimed.
(Note: In the latest budget announcement changes were made to depreciating assets in properties effective 7.30PM (AEST) on 9 May 2017. This measure limits plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties.)
The ATO defines a depreciating asset as ‘an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used’. To determine the depreciation value of an asset, its effective lifespan needs to be determined or the period it can be used for tax purposes. Note that the value of the depreciating asset will begin to decline when first used or when it is installed ready for use.
There are various other deductions available for investment property owners and it is recommended you speak to your accountant to ensure that tax reduction opportunities are not missed. To contact McKinley Plowman’s property accountants for professional advice on your investments, please click here .
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