TAX DEDUCTIBLE EXPENSES CHECKLIST


If you currently own, or are considering investing in a Residential Investment Property, you can legally make immediate deductions on a host of plant, equipment and service expenses.

DEDUCTIBLE – STRAIGHT AWAY!

Property management & maintenance expenses

o   Advertising for tenants – directly by you or where the agent charged you

o   Body corporate fees or Strata Title fees and charges

–        Special levies for capital works on a building can only be depreciated at 2.5%

o   Cleaning

o   Gardening/Lawn Mowing

o   Pest control

o   Security patrol fees

 Rates & Taxes

o   Water rates, charges & usage

o   Council rates

o   Land tax – first time owners have to lodge an initial land tax return with the Office of State Revenue in each state – YOU have to initiate this. They will not chase you up but they will charge additional interest for late lodgement

Property Agent Management

o   Fees/commissions – including GST

o   Postage & petties,

o   Statement fees and

o   Bank charges/fees

o   Lease document expenses

o   Letting fees

 Administration expenses including

o   Stationery used to maintain your rental records etc.

o   Postage on documents relating to property management

o   Telephone calls relating to property management – ATO prefers to see a diary

o   Legal expenses relating to debt collection or tenant problems

o   Electricity & gas – where not covered by tenant

 Insurances

o   Landlords

o   Building

o   Contents

o   Public liability

On Settlement – from the solicitor’s settlement letter

o   Balance of council rates

o   Balance of water rates

o   Balance of body corporate fees

Repairs & Maintenance

– relating to wear & tear or damage as a result of renting out the property, as opposed to damage in existence at purchase.The expense is an repair when it is being restored. Generally repairs include

o   Plumbing

o   Electrical

o   Handyman

o   Etc.

ATO is particularly concern about people who are claiming expenses described as repairs when they are considered to be improvements.

Example – fixing broken glass on a window is considered a repair. Replacing the whole window frame is an improvement which can be depreciated at 2.5%

Repairs made immediately after purchase of the investment property or maintenance to make the property suitable for rental are considered to be of a capital nature (initial repair) – form part of the cost of the property and can be depreciated. They are not deductible as ATO considers the lower price of the property reflects its state of disrepair.

Interest & loan a/c fees on loans to finance investment properties.

o   For the interest to be deductible the loan must have been applied to acquire an income producing asset e.g. rental property

o   Where loans used for both investment property and private assets the interest has to be apportioned based on how much of the principal was used for which purpose.

–        This usually happens when people are using a Line of Credit facility

Travel expenses to –

o   Inspect property

o   Maintain property

o   Collect rents

A full deduction can only be claimed if the sole purpose of the trip relates to the property.

o   Where the inspection is combined with a holiday, expenses must be apportioned, Where you visit an investment property during 1 of 10 days you are in the holiday location ATO says you are only allowed the cost of travel from your accommodation to the rental property and return

Quantity Surveyor’s report showing depreciation expenses and Special Building Write-off

Seminars

– cost of attending property investment seminars – only to the extent that they relate to operating or maximising the return on currently owned properties

o   Where money is spent on relevant seminars before any property is acquired, there will be no deduction available 

DEDUCTIBLE – NUMBER OF YEARS
  • Borrowing Expenses – deductible over the period of the loan where the loan is less than five years. Otherwise deductible over five years. Expenses deductible include:

o   Loan Application fee

o   Title search fees

o   Lenders mortgage insurance

o   Stamp duty on mortgage

o   Mortgage registration fees

  • Depreciation on Plant & Equipment– ATO calls it Decline in Value of depreciating assets
  • Depreciation on the building construction – ATO calls it Capital Works deduction
  • Cost of installing any plant & equipment such Hot Water Systems – are considered part of the cost of system – to be depreciated
  • Set of assets e.g. dining table and 6 chairs – is to be depreciated in accordance with their effective life

o   Each item cannot be separately deducted for being under $300 

NOT DEDUCTIBLE  – CAPITAL IN NATURE

The following items are either not deductible or considered to be of a capital or private nature by ATO

  • On Purchase
    • Purchase price
    • Stamp duty on purchase
    • Legal/conveyancing fees
    • Pest & Property inspection
    • Sourcing Fee
    • Renovations immediately after purchase
    • Repairs immediately after purchase
  • On Sale of a property
    • Legal/conveyancing
    • Advertising
    • Agent fees
  • Pre-Purchase expenses including (especially if property was not purchased)
    • Attending seminars to acquire more property
    • Cost of reports on property prior to purchase
    • Travel to inspect property prior to purchase
  • Where the property was not available for rent, then all the expenses described above are not deductible
    • Particularly relevant where the property is used as your personal holiday accommodation.
    • Listing with agent and his documentation helps prove its availability for rental
  • Cost of improvements or renovations can only be depreciated over 40 years at 2.5% p.a. 
RECORD KEEPING

Keep bank statements for 12 months, try to maintain a separate bank account or offset account to pay of rental property expenses from.

Information courtesy of Umbrella Accountants

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