Rental property expenses – What you can and can't claim
If you're a landlord, there can be a lot of confusion about what you can and can't claim for your rental properties.
Landlords often get confused about what they can and can't claim for rental properties, because what often seems to make sense in the 'real world' does not always make sense for the Australian Tax Office.
The general rule of deductions is that they can only be claimed if they were incurred in the period that you rented the property or during the period that it was available for rent. That means that a tenant needs to be in the property or a new tenant is being sought.
One of the mistakes landlords often make is not putting a tenant into a property because it requires renovation. You may not be able to claim the expenses incurred during renovation if it was not rented or available to rent during that time (there are some exceptions to this rule).
From the ATO's perspective, you need to demonstrate a relationship between the money you make and the deductions you claim. Here are some of the most common problem areas where landlords get caught short.
If you have to fly interstate to inspect your property, stay overnight and then fly home, then you can claim the cost of the travel. However if the purpose of your trip is in fact a holiday and the inspection s incidental to it, then the trip is non-deductible except for direct expense and a 'reasonable' portion of your accommodation.
Only the interest on repayments for investment property loans, and bank charges, are deductible - not the actual loan itself.
Expenses you incur for repairs and maintenance are deductible if the expenses relate to wear, tear, and damage through rental activities.
If the repair improves function or if it replaces an entire structure (e.g. a whole fence as opposed to repairing damaged palings), it's unlikely to be deductible but will be capital and can be depreciated over time.
If you are an Australian resident, the ATO looks at your worldwide income. This means that if you own rental property overseas, you have to declare any income earned in your tax return - even if you have lodged a tax return and paid tax on the rental income in the country where the property is located.
For example, if interest is paid on foreign rental loans (used to acquire the foreign property) you might want to check the double tax agreement to see if it is deductible (was withholding tax required to be paid?).
If you're about to become a landlord or you're unsure of which expenses can be claimed, it's advisable to speak to your accountant sooner rather than later. Email or call us on 02 9957 4033 for more information.
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Last updated 21 August 2014. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.