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This month we are going to look at the Income Tax deductions that are available in the year they are incurred. Next month were will look at the expenses that have to be written off over time – capital expenditures.
The following list of deductions is taken from a number of documents on the ATO website.
It is not meant to be exhaustive as it would be many pages long to cover all the variations and idiosyncrasies inherent in tax law.
It is meant to give you an insight into what you can claim but is not intended to cover your personal circumstances. In all cases you should see your accountant or tax agent to ensure that you claim all you are entitled to and to avoid claiming things that you can’t. There is much misinformation out there so play it safe and seek advice.
Expenses deductible immediately – management, maintenance, interest
You can generally claim an immediate deduction (that is, against your current year's income) for your expenses related to the management and maintenance of the property, including interest on loans.
If your property is negatively geared you may be able to deduct the full amount of rental expenses against your rental and other income, such as salary and wages and business income.
To claim deductions for expenses, your property must include a dwelling that is rented or available for rent – for example, advertised for rent. If you're building a rental dwelling, you can claim deductions for the land while you are building.
Expenses for which you may be entitled to claim an immediate deduction include:
· Advertising for tenants
- Body corporate fees and charges but not special levies for capital works
- Council rates
- Water charges
- Land tax
- Cleaning
- Gardening and lawn mowing
- Pest control
- Insurance (building, contents, public liability)
- Interest expense
What can you claim?
You can claim the interest charged on the loan you used to: - purchase a rental property
- purchase a depreciating asset for the rental property (for example, to purchase an air conditioner for the rental property)
- make repairs to the rental property (for example, roof repairs due to storm damage)
- finance renovations on the rental property which is currently rented out, or which you intend to rent out (for example, to add a deck to the rear of the rental property)
- purchase land on which to build a rental property.
You can also claim interest you have pre-paid up to 12 months in advance.
What are you unable to claim?
You cannot claim interest: - you incur after you start using the rental property for private purposes
- on the portion of the loan you use for private purposes (for example, money you use to purchase a new car or invest in a super fund)
- on a loan you used to buy a new home if you do not use the new home to produce income
· Property agent's fees and commission
- Repairs & maintenance
- Some legal expenses
What can you claim? You can claim the cost of the following as income tax deductions:
- evicting a non-paying tenant
- expenses incurred in taking court action for loss of rental income
- defending a damages claim in respect of injuries suffered by a third party on your rental property.
What are you unable to claim? You cannot claim the cost of the following as income tax deductions:
- solicitor's fees for the purchase of the property (these are a capital expense)
- solicitor's fees for the preparation of loan documents (these can be claimed as borrowing expenses)
- legal costs associated with resisting land resumption (these are a capital expense)
- legal costs associated with defending your title to the property (for example, defending an action by the mortgagee to take possession of the property where you have defaulted under the loan - these are a capital expense).
Travel undertaken to inspect the property, to collect the rent or for maintenance. Generally, you can claim a deduction for the cost of travel you incur to inspect or maintain rental properties or to collect rent.
You can claim travel expenses for: - preparing the property for new tenants (except for the first tenants)
- inspecting the property during or at the end of tenancy
- undertaking repairs, where those repairs are because of damage or wear and tear incurred while you rented out the property
- maintaining the property, such as cleaning and gardening, while it is rented or available for rent
- collecting the rent
- visiting your agent to discuss your rental property.
You cannot claim travel expenses: - for your personal use of the property or for purely private purposes
- to carry out general maintenance of the property while it is not genuinely available for rent
- to undertake repairs, where those repairs are not because of damage or wear and tear incurred while you rented out the property (for example, if you travel to undertake initial repairs before you rent the property for the first time, it is capital expenses and may be included as part of the cost base for capital gains tax calculation when the property is being sold later).
- Where your travel expenses are partly for private purposes and partly related to the rental property, you can only claim the amount relating to the rental property.
Next Month we will look at Capital Works expenditure, Borrowing Expenses and Depreciating Assets. How to Make Tax Deductions on Your Rental Property - Part One palmbeachfn.com.au November 2016 First National Palm Beach 15 Palm Beach Ave Palm Beach, Queensland 4221
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