Investment property tax deductions
Generally, travel expense deductions relate to the cost of travel that a taxpayer incurs to inspect or maintain rental properties. You can claim a deduction for travel expenses for:
- Preparing the property for new tenants (except for the first tenants)
- Inspecting the property during or at the conclusion of tenancy
- Undertaking repairs, where those repairs are a consequence of the damage or wear incurred whilst being rented out
- Maintenance of the property, such as gardening, whilst it is rented or available for rent
- Visiting your agent to discuss your rental property
You must ensure that you keep all receipts for any deductions that you wish to claim. The ATO is constantly increasing their audit activity and it is important that you can justify your claims.
A strategy to defer tax, that may be attractive if you expect to pay tax at a lower rate next year, is to wait until early in the new financial year before chasing tenants for unpaid rent. This should be considered in the weeks leading up to 30 June.
If your investment property was built after 18 July 1985 then it is worthwhile considering a depreciation schedule from a quantity surveyor.
You can quite often recoup their fee in your first tax return as deductions can be in the thousands each year.
Below is a handy checklist of typical deductions related to rental properties that can be claimed:
- Body Corporate Fees
- Borrowing Expenses (for example, stamp duty and legal fees on mortgage)
- Building depreciation
- Cleaning Costs
- Council Rates
- Depreciation of fixtures and fittings (light fittings, carpets etc)
- Insurance Costs
- Interest on loans (including interest prepaid up to 12 months in advance) and bank charges
- Land Tax
- Property Agent Management Fees
- Repairs and Maintenance (excluding improvements which are treated as capital and added to the cost base of the
asset for capital gains tax purposes rather than being claimed as an immediate deduction)
- Telephone, postage and stationary
- Travelling Expenses
- Water Rates
The above issues need to be considered carefully before 30 June, so speak to your accountant to ensure you are making the correct tax planning decisions in relation to your investment property.
TIP: If you are negatively gearing a property and struggling with cash flow, you may be able to arrange to have a PAYG Withholding Variation Application lodged. This enables you to have less tax taken out of each pay packet!
Please send through your comments or questions regarding these tax tips below.
Peter McLinden says
Ben, In your article you mentioned travel expenses are not deductable preparing the property for the first tenants.
I have incurred significant travel costs in preparing my late mothers property that I inherited.
The complexity is that the property was rented out by my mother previously and after she died the rent went in to her estate.
As the new tenants will not be the first tenants can I still claim the travel costs even thought they will be my first tenants.
Ben Tardrew says
Thank you for your question.
Firstly, the reasoning for the travel, ie what type of works were conducted on the property during the travel period, would need to be obtained. If the travel was in relation to repairs and maintenance on the property between tenants, irrespective of it being transferred from an estate, then a full deduction may be available.
However, if the travel was to increase the value of the property, then generally this would be deemed a capital outlay and not fully deductible outright.
As is the case in all circumstances, professional advice tailored to your individual situation is required to provide a definitive answer.