Australia has millions of property investors nationwide, proving that Australians tend to look at property as a smart and equitable investment. Yet, many landlords get it wrong year after year when it comes to claiming tax deductions from the ATO. This comes down to a lack of knowledge and education, with many people unaware of what expenses are claimable from the ATO. Well, fear no more, in this article we give you an insight into what you could be claiming for each of your investment properties.
As a landlord, you can claim tax deductions for many of the expenses associated with your property. Some can be claimed immediately, while others are claimed over a number of years. For instance, if you have work done to your property, you can make note of whether the work is a repair or an improvement on your property. Repair costs are deductible in the year they occur, but the cost of improvements, ie. Capital costs, become part of the cost base. These figures are then used to calculate your capital gain or capital loss when you eventually sell your property.
Here is an indication of the type of expenses you are able to claim on your investment property:
• Council Rates
• Water Charges
• Interest on loan(s)
• Repairs and maintenance
• Property Agent fees/commission
• Plant depreciation
• Sundry rental expenses
• Capital works deduction
• Stationary, telephone and postage
• Body Corporate Fees
• Travel Expenses
• Land tax
• Gardening/ lawn mowing
• Cleaning Expenses
• Advertising for Tenants
• Pest Control
• Legal Fee
Whilst the list of possible expenses is extensive, the largest deduction for most people who have taken out a loan to fund an investment, is the mortgage and therefore interest costs. These costs are tax deductable and should be no issue when claiming from the ATO as the interest costs are recorded on the lender’s statement upon repayments. The ATO states that the investor is able to claim 20 per cent of the borrowing expenses, which includes legal expenses and stamp duty, for the first five years after buying the property.
However, a common mistake made by investors is to claim the interest costs for the whole 12 months when they have only leased the property for a portion of the year, as a holiday home for example. It is important to ensure that costs being deducted is proportioned to the time the property was rented or was available for rent.
In addition, some landlords also make the mistakes of claiming deductions for rental properties not available for rent or overstating deduction claims for the interest on investment loans which have a private proportion.
It is important to be aware of what you as a landlord are able to claim, enabling you to receive the most from your tax reductions. Nevertheless, be sure to claim correctly as costly penalties are set in place by the ATO if your tax claims are incorrect. The ATO offers a comprehensive tax office guide, Rental Properties, which aims to help investors get their tax right. Find this publication at the ATO website.