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Rental Property Deductions

Purchasing a rental property can be a smart investment and tax effective when structured correctly. Here is a quick overview of what you can and can’t claim and what happens when you sell your rental property.

There are three types of rental expenses consisting of:

  1. Expenses that are not claimable:
  • Acquisition and disposal costs including stamp duty, conveyancing costs, advertising, commission etc. Although these costs cannot be claimed immediately, they can form part of the cost base for capital gains tax purposes.
  1. Expenses claimed as immediate deductions:
  • Advertising
  • Bank Charges & Interest
  • Body corporate
  • Cleaning
  • Council Rates
  • Depreciation
  • Electricity
  • Gardening
  • Insurance
  • Pest Control
  • Agent Fees
  • Rates & Water Charges
  • Repairs & Maintenance
  • Stationary & Postage
  • Travel Expenses
  1. Expenses deductible over a number of years
  • Borrowing expenses (>$100)
  • Depreciating Assets (Assets valued at less than $300 are 100% deductible in the year of purchase. Assets over $300 are depreciated at a percentage based on the effective life of the asset)
  • Capital works deductions

The most common mistake with rental property is “When is a repair not a repair?”

Repairs become capital work deductions when they are structural improvements to the premises such as renovating a kitchen or building a deck. It can also pay to obtain a quantity surveyor report allowing you to claim additional depreciation and building write-off deductions.

Being prepared before buying is an important factor as there may be a period of time without rent due to renovations or between tenants. Therefore you should implement cash flow plans to have access to funds through these periods. Talking to your accountant before you buy a property, or do repairs or renovations, is essential to avoid the risk of making incorrect tax deductions.

Selling your property and dealing with capital gains tax

  • When selling your property you could be liable for capital gains tax
  • Your capital gain is the difference between your ‘cost base’ (costs to obtain ownership) and your ‘capital proceeds’ (money received when you sell it)
  • If you have owned your property for more than 12 months, you may be able to reduce your capital gain by the 50% discount
  • Any taxable capital gain is added to your other income in the year of sale and tax will be payable at your marginal tax rate.

As always, we recommend speaking to your accountant before selling. There may be some tax planning opportunities we can put in place to reduce the tax burden.

Bowdler Tax and Accounting provides accounting, compliance, business management and taxation advice that assists clients to manage and grow their business.