As an investment property owner of around 15 years, I\u2019ve been hit with just about every property tax and expense that you can think of.<\/p>\n
Hot water systems suddenly stop working.<\/p>\n
Air-conditioning units and dishwashers that no longer turn on.<\/p>\n
![\"Investment](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/12\/investment-property-800x450.jpg\")
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I once received a sky-high water bill that prompted me to do some digging – it revealed a deep, buried water leak that cost several thousand dollars to locate and repair.<\/p>\n
And there was a time a leak from our unit into the property below turned out to be a waterproofing issue, which wasn\u2019t covered by insurance, and cost $10,000 to repair.<\/p>\n
The bottom line is that owning an investment property can see you paying a number of unforeseen bills each month.<\/p>\n
But, while this might be true, if you buy the right type of quality property in the right location, it can also help you grow your wealth.<\/p>\n
And as an added incentive, the expenses involved in owning an investment property help you pay less tax.<\/p>\n
Specificity of income tax on investment property<\/span><\/h2>\nThe majority of the costs associated with owning a rental property can be deducted against your regular income tax bill, which reduces the amount of tax you pay overall.<\/p>\n
For example,<\/p>\n
\nLet\u2019s say you earn $80,000 a year and in total, you spend $25,000 paying for your investment property, but you receive $20,000 in rental income.<\/p>\n
The $5,000 difference between the money you receive in rental income ($20,000) and the money you spend paying for the property ($25,000) is tax-deductible. <\/p>\n
That\u2019s $5,000 worth of expenses you can claim against your regular income tax.<\/p>\n
That means that the Australian Taxation Office (ATO)<\/a> would assess your tax as if you\u2019d earned $75,000 instead of $80,000.<\/p>\nSo, every week or fortnight, or month, you\u2019ll pay tax as if you earn $80,000, but then when it\u2019s time to file your tax return, you\u2019ll get a refund of any tax paid on the $5,000 difference.<\/p>\n
According to current tax rates, that\u2019s around $1,625 back in your pocket.<\/p>\n<\/blockquote>\n
Not only that, but you can also usually make a claim each year for depreciation, which is an allowance for the wear and tear of the property over time.<\/p>\n
Top 15 tax deductions for investment properties in Australia<\/span><\/h2>\nSo what kinds of expenses can you claim when you own an investment property?<\/p>\n
The costs can add up pretty quickly, but the upside to shelling out for ongoing maintenance, repairs, and mortgage interest is that the list of expenses you can claim on your tax return is longer than a supermarket receipt.<\/p>\n
The following list will help ensure you don\u2019t miss anything.<\/p>\n
1. The cost of advertising and marketing for new tenants<\/strong><\/p>\nYour property manager will charge you for marketing your property or for advertising it for lease.<\/p>\n
If you or your agent market your property using online, print media, brochures, and signs, you can claim these advertising expenses against your income in the same year that you paid for them.<\/p>\n
2. Loan interest and bank fees<\/strong><\/p>\nIf you have a principal and interest loan against your investment property, while you can’t deduct the principal repayments, you can claim a tax deduction for any interest accrued on your regular repayments as an investment expense.<\/p>\n
Interest-only loans are a popular option among investors since they allow them to deduct their full repayments for a period before the loan reverts to both principal and interest repayments.<\/p>\n
3. Body corporate fees and charges (not including special levies)<\/strong><\/p>\nIf your property is on a strata title, you can claim the cost of body corporate fees<\/a>.<\/p>\nThese often include common area maintenance and garden expenses, as well as building public liability and insurance.<\/p>\n
![\"Tax2\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/11\/tax2.jpg\")
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4. Building, contents, landlords, and public liability insurance<\/strong><\/p>\nIf you have insurance on your investment property (building insurance, contents insurance, landlord insurance, or public liability insurance) you can claim the cost in your tax return.<\/p>\n
Landlord insurance typically covers tenant-related risks such as damage to the contents and building, or loss of rental income.<\/p>\n
5. Council rates<\/strong><\/p>\nCouncil rates can be deducted in the year that they are paid, although you can only claim them during periods in which the house was rented.<\/p>\n
For example, if your investment property was only rented for 219 days of the year, then you can only claim your rates for that period.<\/p>\n
This means you would claim 60% (219\/365) of the total amount you paid in council rates for your investment property that year.<\/p>\n
6. Property management fees<\/strong><\/p>\nA great real estate agent or property manager helps you achieve the best results from your investment property, with the added bonus of any fees charged being tax-deductible.<\/p>\n
The fees of any other expert including a valuer, depreciation expert, accountant, landscape designer, or interior designer are also tax-deductible.<\/p>\n
7. Depreciation, relating to the wear and tear of the building and its contents<\/strong><\/p>\nTo claim depreciation you\u2019ll need to get a depreciation schedule prepared at a cost of around $600-$700 (this fee is tax-deductible too).<\/p>\n
According to the ATO, a depreciating asset is “an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is in use”.<\/p>\n
Examples of assets that deductions for decline in value can be applied to include:<\/p>\n
\n- timber flooring<\/li>\n
- carpets<\/li>\n
- curtains<\/li>\n
- appliances like a washing machine or fridge<\/li>\n
- furniture<\/li>\n<\/ul>\n
![\"Tax3\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/11\/tax3.jpg\")
<\/p>\n
8. Negative gearing<\/strong><\/p>\nNegative gearing<\/a>\u00a0is a tax strategy that Australians have been using for many years (if not decades) to make the prospect of owning investment properties more manageable and more profitable.<\/p>\n\nIn simple terms, negative gearing takes place when you own an asset, in this case, property, that costs you more than you are earning from it.<\/p>\n
For example, the interest you are paying on your mortgage and all other associated costs with the property, equal more than the income or rent you earn from that property.<\/p>\n
As a result, you are making a financial loss and you can claim this as a tax deduction.<\/p>\n
9. Gardening expenses<\/strong><\/p>\nProperty owners can claim the upkeep and replacement of plants and structures as an immediate deduction.<\/p>\n
However, you can\u2019t immediately claim the cost of any new plants or changes that add extra value to the property, as these are deemed as \u201cimprovements\u201d.<\/p>\n
10. Land tax<\/strong><\/p>\nIf the dwelling on your investment property is rented out, you can claim land tax<\/a> as a deduction.<\/p>\nSome state governments offered land tax discounts for landlords who provided rent relief for their tenants impacted by Covid-19.<\/p>\n
11. Utility fees (where it\u2019s not paid by the tenant)<\/strong><\/p>\nYou are able to claim the basic costs for any electricity, gas, or water supply fees that you pay during tenancies.<\/p>\n
Usually, this is all paid by the tenant, but this is helpful in the case where there is a gap between tenancies – in this case, supply charges and any usage charges incurred between tenants can be legitimately deducted from any income.<\/p>\n
12. Pest control<\/strong><\/p>\nProfessional pest control costs are tax-deductible and you or your tenant can claim this expense depending on who paid for it.<\/p>\n
![\"Tax4\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/11\/tax4.jpg\")
<\/p>\n
13. Repairs and maintenance<\/strong><\/p>\nRepairs and maintenance can be claimed as a tax deduction in the same income year if the repairs are a result of wear and tear, like fixing a broken appliance or repairing storm or flood damage.<\/p>\n
However, the difference between repairs and improvements can be confusing for property investors.<\/p>\n
If you improve the property this is not the sort of expense you can write off immediately.<\/p>\n
A repair replaces a part of something or corrects something that\u2019s already there and has become worn out or dilapidated.<\/p>\n
On the other hand, an improvement makes something better than it was originally.<\/p>\n
Generally, an improvement makes something function more efficiently than it used to and will increase a property\u2019s market value or extend its income-producing potential.<\/p>\n
To better understand the different tax implications please read this article<\/a>.<\/em><\/p>\n14. Some legal costs and lease document preparation expenses<\/strong><\/p>\nIf you have to hire legal professionals for something related to the tenant, such as eviction or an unpaid lease, you can claim this as a tax deduction.<\/p>\n
However, you can\u2019t claim the legal fees for initially buying the property \u2013 these are called capital costs.<\/p>\n
Let\u2019s say you earn $80,000 a year and in total, you spend $25,000 paying for your investment property, but you receive $20,000 in rental income.<\/p>\n
The $5,000 difference between the money you receive in rental income ($20,000) and the money you spend paying for the property ($25,000) is tax-deductible. <\/p>\n
That\u2019s $5,000 worth of expenses you can claim against your regular income tax.<\/p>\n
That means that the Australian Taxation Office (ATO)<\/a> would assess your tax as if you\u2019d earned $75,000 instead of $80,000.<\/p>\n So, every week or fortnight, or month, you\u2019ll pay tax as if you earn $80,000, but then when it\u2019s time to file your tax return, you\u2019ll get a refund of any tax paid on the $5,000 difference.<\/p>\n According to current tax rates, that\u2019s around $1,625 back in your pocket.<\/p>\n<\/blockquote>\n Not only that, but you can also usually make a claim each year for depreciation, which is an allowance for the wear and tear of the property over time.<\/p>\n So what kinds of expenses can you claim when you own an investment property?<\/p>\n The costs can add up pretty quickly, but the upside to shelling out for ongoing maintenance, repairs, and mortgage interest is that the list of expenses you can claim on your tax return is longer than a supermarket receipt.<\/p>\n The following list will help ensure you don\u2019t miss anything.<\/p>\n 1. The cost of advertising and marketing for new tenants<\/strong><\/p>\n Your property manager will charge you for marketing your property or for advertising it for lease.<\/p>\n If you or your agent market your property using online, print media, brochures, and signs, you can claim these advertising expenses against your income in the same year that you paid for them.<\/p>\n 2. Loan interest and bank fees<\/strong><\/p>\n If you have a principal and interest loan against your investment property, while you can’t deduct the principal repayments, you can claim a tax deduction for any interest accrued on your regular repayments as an investment expense.<\/p>\n Interest-only loans are a popular option among investors since they allow them to deduct their full repayments for a period before the loan reverts to both principal and interest repayments.<\/p>\n 3. Body corporate fees and charges (not including special levies)<\/strong><\/p>\n If your property is on a strata title, you can claim the cost of body corporate fees<\/a>.<\/p>\n These often include common area maintenance and garden expenses, as well as building public liability and insurance.<\/p>\n 4. Building, contents, landlords, and public liability insurance<\/strong><\/p>\n If you have insurance on your investment property (building insurance, contents insurance, landlord insurance, or public liability insurance) you can claim the cost in your tax return.<\/p>\n Landlord insurance typically covers tenant-related risks such as damage to the contents and building, or loss of rental income.<\/p>\n 5. Council rates<\/strong><\/p>\n Council rates can be deducted in the year that they are paid, although you can only claim them during periods in which the house was rented.<\/p>\n For example, if your investment property was only rented for 219 days of the year, then you can only claim your rates for that period.<\/p>\n This means you would claim 60% (219\/365) of the total amount you paid in council rates for your investment property that year.<\/p>\n 6. Property management fees<\/strong><\/p>\n A great real estate agent or property manager helps you achieve the best results from your investment property, with the added bonus of any fees charged being tax-deductible.<\/p>\n The fees of any other expert including a valuer, depreciation expert, accountant, landscape designer, or interior designer are also tax-deductible.<\/p>\n 7. Depreciation, relating to the wear and tear of the building and its contents<\/strong><\/p>\n To claim depreciation you\u2019ll need to get a depreciation schedule prepared at a cost of around $600-$700 (this fee is tax-deductible too).<\/p>\n According to the ATO, a depreciating asset is “an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is in use”.<\/p>\n Examples of assets that deductions for decline in value can be applied to include:<\/p>\n 8. Negative gearing<\/strong><\/p>\n Negative gearing<\/a>\u00a0is a tax strategy that Australians have been using for many years (if not decades) to make the prospect of owning investment properties more manageable and more profitable.<\/p>\n\n In simple terms, negative gearing takes place when you own an asset, in this case, property, that costs you more than you are earning from it.<\/p>\n For example, the interest you are paying on your mortgage and all other associated costs with the property, equal more than the income or rent you earn from that property.<\/p>\n As a result, you are making a financial loss and you can claim this as a tax deduction.<\/p>\n 9. Gardening expenses<\/strong><\/p>\n Property owners can claim the upkeep and replacement of plants and structures as an immediate deduction.<\/p>\n However, you can\u2019t immediately claim the cost of any new plants or changes that add extra value to the property, as these are deemed as \u201cimprovements\u201d.<\/p>\n 10. Land tax<\/strong><\/p>\n If the dwelling on your investment property is rented out, you can claim land tax<\/a> as a deduction.<\/p>\n Some state governments offered land tax discounts for landlords who provided rent relief for their tenants impacted by Covid-19.<\/p>\n 11. Utility fees (where it\u2019s not paid by the tenant)<\/strong><\/p>\n You are able to claim the basic costs for any electricity, gas, or water supply fees that you pay during tenancies.<\/p>\n Usually, this is all paid by the tenant, but this is helpful in the case where there is a gap between tenancies – in this case, supply charges and any usage charges incurred between tenants can be legitimately deducted from any income.<\/p>\n 12. Pest control<\/strong><\/p>\n Professional pest control costs are tax-deductible and you or your tenant can claim this expense depending on who paid for it.<\/p>\n 13. Repairs and maintenance<\/strong><\/p>\n Repairs and maintenance can be claimed as a tax deduction in the same income year if the repairs are a result of wear and tear, like fixing a broken appliance or repairing storm or flood damage.<\/p>\n However, the difference between repairs and improvements can be confusing for property investors.<\/p>\n If you improve the property this is not the sort of expense you can write off immediately.<\/p>\n A repair replaces a part of something or corrects something that\u2019s already there and has become worn out or dilapidated.<\/p>\n On the other hand, an improvement makes something better than it was originally.<\/p>\n Generally, an improvement makes something function more efficiently than it used to and will increase a property\u2019s market value or extend its income-producing potential.<\/p>\n To better understand the different tax implications please read this article<\/a>.<\/em><\/p>\n 14. Some legal costs and lease document preparation expenses<\/strong><\/p>\n If you have to hire legal professionals for something related to the tenant, such as eviction or an unpaid lease, you can claim this as a tax deduction.<\/p>\n However, you can\u2019t claim the legal fees for initially buying the property \u2013 these are called capital costs.<\/p>\nTop 15 tax deductions for investment properties in Australia<\/span><\/h2>\n
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