Tax for property investors: What can I claim?

Among the attractions of investing in property is that most of the expenses incurred in owing and managing the property are tax deductible.

Even if the property is unoccupied, these expenses will be deductible if the property is available for rent, and genuine efforts are being made to find a tenant.

You can even claim deductions for the land while a rental dwelling is being built, provided you have clearly evidenced intentions to seek a tenant once works are completed.

Expenses you can claim

Below is a list of examples of common expenses for which an immediate deduction can be claimed:

• Advertising for tenants
• Body corporate fees and charges
• Council rates
• Water charges
• Land tax
• Cleaning
• Gardening and lawn mowing
• Pest control
• Building, contents and public liability insurance
• Interest expenses
• Property agent’s fees and commission
• Repairs and maintenance
• Some legal expenses

• Travel undertaken to inspect the property, to collect the rent or for maintenance.

It’s important to note that there is a caveat on that last point.

Since July 2017, travel expenses related to an investment property are not deductible unless you are carrying on a business of property investing or are an excluded entity.

Most investors are not considered to be ‘carrying on a business of property investing’, so this takes travel costs off the list of allowable deductions.

Claiming deductions for repairs and maintenance is also an area of some confusion.

The costs of repairing damage to a property or slapping on a coat of paint to prevent deterioration are immediately deductible. So is the cost of replacing part of a paling fence that blew over, as this is a repair.

However, replacing the whole fence with a brick wall is an improvement, so not immediately deductible.

The rule of thumb is: a repair restores the function of the property being repaired without changing its character. In other words, it is remedying or making good of defects in, damage to or deterioration of the property.

In this case, the expense may be able to be claimed over a number of years or included in the cost base and offset against any capital gain.

What you can’t claim

While there are many things you can claim, there are items that are not eligible for claims.

You can’t claim the following:

• Expense related to personal use of the property
• Utility bills paid by the tenant
• Interest expenses where money you’ve borrowed against the property is used for private expenditure unrelated to the property
• Buying and selling expenses, such as advertising, legal fees and sales agent commissions.

While buying and selling costs may not be deductible against income, they can be included in the cost base, thereby reducing any capital gain (or increasing a capital loss).

Capital losses can be carried forward indefinitely and offset against future capital gains.

Expert guidance

Finding your way through the maze of property investment and tax management issues while staying on the right side of the ATO can be a challenge. LDB can help.

Our expertise covers tax and compliance, strategy, real estate advisory and even owner’s corporation management.

To find out how we can help you make the most of your real estate investment portfolio, call us on (03) 9875 2900, or fill in the contact form below and we’ll be in touch.