Rental property tax deductions


Rental property tax deductions

Flor- Hanly - Tuesday, April 16, 2019

Expenses you can claim

You can claim a deduction for your related expenses for the period your property is rented or is available for rent.

  • property deductionsmanagement and maintenance costs, including interest on loans, can generally be claimed immediately (that is, deducted against your current year’s income).
  • borrowing expenses, depreciation and capital works spending can be deducted over a number of years.
You can’t claim:

  • expenses not actually paid by you, such as water or electricity charges paid by your tenants
  • acquisition and disposal costs, including the purchase cost, conveyancing and advertising costs and stamp duty* on the title transfer – instead, these are usually included in the property’s cost base, which would reduce any capital gains tax when you sell the property
  • GST credits for anything you purchase to lease the premises – GST doesn’t apply to residential rental properties. However, when claiming the expense as a deduction, you claim the total amount you’ve paid (inclusive of GST, if applicable).
* Unlike stamp duty on the transfer of freehold title, stamp duty on the transfer of a property under the ACT’s leasehold system is generally deductible 

Property genuinely available for rent

Expenses may be deductible for periods when the property is not rented out, providing the property is genuinely available for rent – that is:

  • the property is advertised, giving it broad exposure to potential tenants
  • considering all the circumstances, tenants are reasonably likely to rent the property.
The absence of these factors generally indicates the owner doesn’t have a genuine intention to make income from the property. Factors that may indicate a property is not genuinely available for rent include:
  • it is advertised in ways that limit its exposure to potential tenants – for example, the property is only advertised:
    • at your workplace
    • by word of mouth
    • outside annual holiday periods when the likelihood of it being rented out is very low
  • the location, condition of the property, or accessibility of the property, mean it is unlikely tenants will seek to rent it
  • you place unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out, such as:
    • setting the rent above the rate of comparable properties in the area
    • placing a combination of restrictions on renting out the property – such as requiring prospective tenants to provide references for short holiday stays and having conditions like “no children” and “no pets”.
  • you refuse to rent out the property to interested people without adequate

With new data for the 2018-19 financial year to date showing over 1 in 4 people had lived in their property prior to renting it out, effectively putting their investment property tax deductions at risk, continue reading the ATO’s article here. Please call the team at Flor-Hanly in Mackay if you have any questions about your property rental(s) on 07 4963 4800.

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