With Tax Season now upon us, it is important to get your property documents in order to ensure you claim all allowable expenses. Each year Australian property investors declare around $35 billion in rental income and $45 billion in property expenses. The list below is the Top 10 property expenses based on value as reported by the ATO Statistics.
Bank Interest (79% Claim - Avg $10,334)
ATO report shows that 79% of property investors borrow money to buy an investment property. This is the largest and most important tax deductions. As a property investor, you can claim an average of $10,334 entitlement annually.
Tax Depreciation (41% Claim - Avg $3,292)
As the second-largest tax deduction that a property investor can claim, you will be surprised to hear that just 41% of property investors claim this deduction in their tax return. Although the new legislation change in May 2017, which affected what you could claim in your tax return on secondhand properties, this is still the second most important deduction.
Body Corporate (33% Claim - Avg $2,056)
You are eligible to claim body corporate fees and charges on an investment property to cover the day to day costs of administration and maintenance. Where you are required to make a payment for a particular capital expenditure which may include upgrades to windows/balconies, these levies are nondeductible under this category. However, you can claim for common area Capital Expenditure under Tax Depreciation. Your Quantity Surveyor will be able to calculate the correct depreciation rates and update your report.
Council Rates (96% Claim - Avg $1,286)
You can claim a deduction for local government rates and levies for the period your property is rented or is available for rent.
If the local council in which your rental property is located imposes an annual emergency services levy, you can also claim a deduction for that amount.
Property Management (71% Claim - Avg $1,168)
You can claim the cost of fees such as regular management fees or commissions you pay to a property agent or real estate agent for managing, inspecting, or collecting rent for a rental property on your behalf.
You are unable to claim the cost of:
- commissions or other costs paid to a real estate agent or another person for the sale or disposal of a rental property
- buyer’s agent fees paid to any entity or person you engage to find you a suitable rental property to purchase.
These costs may form part of the cost base of your property for capital gains purposes.
Repairs & Maintenance (77% Claim - Avg $1,073)
This area is often contentious and has created many court cases over the years to define the term Repair and Maintenance.
The ATO states “that repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.”
The cost incurred generally involves the replacement or renewal of a worn out or broken part. For example, replacing worn or damaged curtains, blinds, or carpets between tenants. Maintenance generally involves keeping the property in a tenantable condition. For instance, repainting faded or damaged interior walls.
However, the following expenses are capital, or of a capital nature, and are not deductible under this category:
- replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator)
- improvements, renovations, extensions, and alterations
- initial repairs, for example, in remedying defects, damage, or deterioration that existed at the date you acquired the property.
However, the above capital items can be claimed under the Tax Depreciation category. You would need to advise your Quantity Surveyor of these items, so they can update your report with the costs and write-off any assets replaced. Contact us for more information if you are unsure about the items that you can claim.
Insurance (80% Claim - Avg $574)
Each investment property should ensure they have adequate insurance. Remember to claim for your building, contents, and landlord insurance under this category.
Sundry Expenses (56% Claim - Avg $489)
More than 50% of property investors claim Sundry expenses. Although many of the items listed below fall under different categories, many investors still list them under Sundry items. Listed below are typical items which may be claimed under this category:
- Cost of calls or letters to tenants, real estate agents, and tradesmen
- fees and commissions paid to real estate agents to let properties and collect rent
- secretary, bookkeeping and safekeeping fees associated with the collection of rent, payment of expenses, and title documents respectively
- rent paid if subletting
- cost of preparing, registering, or stamping a lease of a property
- legal expenses to eject a tenant for non-payment of rent
- advertising for tenants
- mortgage discharge fees
- council rates and land tax
- insurance premiums paid for building, contents, or public liability
- bank charges on the rental account
- pest control
- cutting new keys
- cleaning expenses (eg. rubbish removal)
- gardening expenses (eg. tree trimming)
- advice about taxation matters relevant to the property
- services of tradesmen (when not associated with a “capital expense”)
- servicing costs
- security system monitoring, maintenance, and patrol fees, and
- losses and outgoings when letting a residence while on the transfer of employment.
Gardening (15% Claim - Avg $420)
Statistics show 15% of property investors claim for gardening expenses. This is a deductible expense and may include: mowing expenses, tree lopping, replacement garden tools, fertilisers, sprays, or replacement of plants.
Pest Control (10% Claim - Avg $217)
If you pay for your investment property to be sprayed or fumigated by a professional pest controller, then you will generally be entitled to a tax deduction.