With the end of financial year quickly approaching, now is the time for property investors to ensure that their tax benefits are being maximised. According to Greg Feutrill, Director of Smith Feutrill Accountants & Advisors, “a careful review of your property’s tax-deductible expenses can be the difference between a negative and a positive cash flow, both of which have pros and cons depending on your investment strategy.”

Firstly, you will need to work out which expenses can be claimed as tax deductions while ensuring all your rental-related income is declared. Any rental income you receive from renting out part, or all, of your property is assessable taxable income, which is taxed at your marginal tax rate. Your property manager will have done most of the heavy lifting, providing you with a per-property income and expenditure statement. Incidentally, Kay & Burton Property Management provides investors with the option of managing all property-related expenses inhouse, which not only provides seamless management of your property but also seamless management of your record-keeping for the Australian Tax Office (ATO).  

To clarify, you can only claim deductions on property during periods in which it is tenanted and/or genuinely available for rent, the latter of which means:  

  • You must be able to show a clear intention to rent the property
  • Advertising the property so that someone is likely to rent it and set the rent in line with similar properties in the area
  • Avoiding unreasonable rental conditions.

Here is Smith Feutrill’s shortlist of tax-deductible property expenses for your consideration.

Agent’s Fees & Rental Advertising Cost

All fees paid to agents and costs incurred in advertising your property are tax-deductible.

Loan Interest

The bank interest on your investment property’s loan is tax-deductible as are any bank fees incurred in servicing the property’s loan.

Council rates, Land Tax & Strata Fees

You can claim council rates, also known as property tax, and land tax during periods in which the property was rented. Land tax is payable on the combined unimproved value of the land you own, calculated on what your land would be worth if it was vacant. If your property is on a strata title, you can claim the cost of body corporate fees too.

Depreciation: Capital Works & Fittings/Fixtures

As a general rule, you can claim capital works deductions on building costs, including extensions, alterations and structural works, of 2.5% a year for 40 years. You can claim deductions on newly purchased items, such as appliances, blinds, carpets, furniture and water systems. It is our recommendation that all property investors maintain a depreciation schedule. This schedule covers the property in its entirety, including all fittings and fixtures. Produced by a Quantity Surveyor, this document is worth its weight in gold come tax time (contact details below).

Repairs & Maintenance

Expenses related directly to “wear and tear”, or other damage related to renting your property, can be claimed in full in the same year the expense incurred. This can include garden maintenance and pest control. If your property is on a strata, just be careful that you are not claiming expenses twice - ie as part of your body corporate fees and again as “repairs and maintenance”. Also, garden maintenance deductions can include upkeep and replacement of plants and structures but not the cost of new plants or changes that add extra value as these are deemed as “improvements” and much be depreciated accordingly.

Insurance, Accounting & Legal Fees

You can claim the cost of advice, preparation of tax returns and expenses incurred for the management of your rental property accounts as well as any legal costs.

If you are time poor and the year has got away from you, this is also a good time to get your ducks in a row for the upcoming financial year. Are you contemplating a renovation, for example? If so, a Quantity Surveyor can produce a scrapping schedule, which places a value on the items that are being thrown away. If your record-keeping hasn’t been as good as it might have been, now is a good time to turn over a new leaf and improve your future record-keeping or, if you’d prefer, have Kay & Burton Property Management do it for you!

For more information, please visit the ATO’s website: https://www.ato.gov.au/General/Property/Residential-rental-properties/Rental-expenses-you-can-claim-now/

To engage the services of Smith Feutrill and/or a Quantity Surveyor, please contact Kay & Burton Concierge on 03 9825 2000 or via concierge@kayburton.com.au. For more information about Kay & Burton Concierge, please visit https://kayburton.com.au/concierge.

Disclaimer: This article is general information only. Kay & Burton does not intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific expert advice regarding your circumstances and objectives.

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