What Property Investors Can Claim on Tax in Australia
Owning an investment property can be a great way to build wealth, but many property owners worry about missing out on tax deductions they’re eligible for. At tax time, it’s easy to feel overwhelmed by the different rules and requirements set by the Australian Taxation Office. Knowing exactly what you can claim on your tax return can help you reduce your taxable income and make the most of your investment income.
Understanding Tax Deductions for Property Investors
Claiming tax deductions is a key part of managing your investment property. Every dollar you claim as a deduction reduces your taxable income, which means you may pay less tax on your investment income. The Australian Taxation Office has clear guidelines about the expenses you can claim, and it’s important to follow these to avoid any issues with your tax return.
How Tax Deductions Work for Investment Properties
When you own an investment property, you can claim a deduction for many of the costs you incur to earn rental income. These deductions are only available for expenses that are directly related to your investment income, not for private use. The total claim you make for the financial year must be supported by written evidence, such as receipts and diary records, to show that the expenses are genuine work-related expenses.
The Importance of Good Records
To claim a deduction, you need to keep accurate records throughout the financial year. This includes receipts, invoices, bank account statements, and written records for small expenses. The Australian Taxation Office may ask for these records if they review your tax affairs, so it’s important to keep everything organised. For some expenses, like car expenses or travel expenses, you may need to use a diary or logbook to record business kilometres or the purpose of the trip.
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Key Tax Deductions You Can Claim
Property investors can claim a wide range of deductions on their tax return. Let’s look at the most common expenses you can claim, and how they can help reduce your taxable income.
Interest Charged on Investment Loans
One of the largest deductions you can claim is the interest charged on money borrowed to buy, renovate, or maintain your investment property. Only the interest portion of the repayments is deductible, not the principal. If you use the loan for both investment and private purposes, you’ll need to calculate the portion that relates to your investment income.
Depreciation and Decline in Value
Depreciation allows you to claim a deduction for the decline in value of certain assets and the building itself. There are two main types:
Capital works deductions: Claim a percentage of the construction cost each year for eligible buildings.
Plant and equipment: Claim for items like home office equipment, appliances, and furniture that lose value over time.
A depreciation schedule prepared by a qualified accountant or quantity surveyor can help you work out the deductions you can claim.
Repairs, Maintenance, and Improvements
You can claim an immediate deduction for repairs and maintenance that keep your property in a rentable condition. This includes fixing broken windows, repairing leaks, or servicing home office equipment. However, improvements that add value or extend the property’s life are claimed over several years, not as an immediate deduction.
Property Management and Holding Costs
The ongoing costs of managing your property are also deductible. These can include:
Council rates and water charges
Land tax
Insurance premiums (building, contents, landlord, public liability)
Property management fees
Legal and accounting fees related to your investment income
If you pay for services like cleaning, dry cleaning, or pest control between tenants, these are considered work related expenses and can be claimed as deductions.
Advertising and Tenant-Related Expenses
You can claim the cost of advertising for tenants, tenant screening, and lease preparation. Bank charges on accounts used for collecting rent and any union fees related to property management are also deductible.
Body Corporate Fees
If your property is part of a strata or body corporate, you can claim the administrative fund fees as an immediate deduction. Special purpose fund contributions may be subject to different rules, so check with your accountant.
Other Expenses You Can Claim
There are a few other items that property investors often overlook but can claim on their tax return.
Travel Expenses
Travel expenses for inspecting your property, collecting rent, or carrying out repairs used to be deductible, but the rules have changed. Now, most individual investors can’t claim travel expenses for residential properties. However, if you own the property through a company or trust, or if it’s commercial property, you may still be eligible to claim.
Car Expenses
If you use your car for property-related purposes, such as visiting your rental property or meeting with your property manager, you may be able to claim car expenses. You’ll need to keep a written record of your business kilometres using the kilometre method or a logbook.
Home Office Expenses
If you manage your investment property from a home office, you may be able to claim a portion of your home office expenses. This can include electricity, internet, phone, and the cost of home office equipment. Keep written evidence of your expenses and calculate the work related portion.
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Self Education and Professional Advice
If you pay for self education courses or attend seminars to improve your knowledge of property investment, you may be able to claim a deduction for these costs. Fees paid to an accountant for preparing your tax return or for advice about your investment income are also deductible.
Donations
Donations to deductible gift recipients can be claimed as a deduction, provided you have a receipt and the donation meets the requirements set out by tax law.
Protective Clothing and Occupation Specific Clothing
If you carry out repairs or maintenance yourself and need protective clothing, you can claim the cost of these items. Occupation specific clothing and laundry expenses may also be deductible if they relate to your investment property activities.
Keeping Your Tax Affairs in Order
Staying organised is key to maximising your income tax deductions and avoiding issues with the Australian Taxation Office. Here are some practical tips:
Keep all receipts, invoices, and written evidence for your expenses.
Use a dedicated account for your property to make record-keeping easier.
Keep diary records for travel and car expenses.
Separate work related expenses from private use.
Review your records at the end of the financial year to ensure your total claim is accurate.
If you’re unsure about any deductions you can claim, or if you want to avoid double dip claims (claiming the same expense twice), it’s always best to seek advice from a qualified accountant.
Conclusion
Claiming tax deductions for your investment property can make a real difference to your taxable income and the amount of tax you pay. By understanding the expenses you can claim, keeping good records, and following the rules set by the Australian Taxation Office, you’ll be well placed to get the most from your investment income.
If you’d like help with your tax affairs or want to make sure you’re claiming every deduction you’re entitled to, our friendly team at ACT Tax Group is here to help. We’re committed to making tax time simple and stress-free for property investors, so you can focus on growing your wealth with confidence.