As many clients now have some type of investment in the property market, it is important to know and understand what you are entitled to claim in relation to expenses incurred.
The general rule of thumb is that you can claim an expense that relates to you gaining or producing assessable income. As monies received from rental income is assessable to an entity, expenses incurred in relation to that income can be deductible and categorised into three areas; non-deductible, immediately deductible and deductible over a period of time.
You are not entitled to claim deductions for acquisition and disposal costs related to the property (these are dealt with when you sell), expenses not actually incurred by you (i.e. expenses paid by the tenant) and expenses not related to the renting of a property (i.e. expenses connected to your own use of a holiday home that you rent out for part of the year).
Expenses for which you may be entitled to an immediate deduction in the income year you incur the expense include those re-occurring expenses such as body corporate fees, council rates, electricity and gas, insurance, interest on loans, land tax, property agent fees and commissions and water charges.
Those occasional one off expenses such as advertising for tenants, cleaning, gardening/lawn maintenance, pest control, repairs and maintenance, stationery and postage and travel also entitle you to an immediate deduction.
These are the most common expenses landlords incur. Remembering that you can only claim the deduction if you paid for it out of your own pocket. If they are paid by your tenant, you do not get any deduction for the expenses.
Some of these generic deductions listed require further analysis for each particular circumstance. If you feel you have incurred some of these expenses in relation to your rental property, let someone at CNS Partners know and we will be sure to claim what deductions you are specifically entitled to for a particular year.
Deductible over time
There are three types of expenses a landlord may incur for a rental property that may be claimed over a number of income years; borrowing expenses, decline in value of depreciation assets and capital works deductions.
Borrowing Expenses are those expenses incurred directly in taking out a loan for the property. Most commonly they include; loan establishment fees, title search fees and preparation fees. If the fees equate to more than $100, they are apportioned and deducted over the lessor of a five year period or the period of the loan.
In relation to any decline in value to deprecating assets, it is important that you keep all your necessary receipts for rental expenses as not only do we need the purchase price, but also the date of purchase for any deprecating assets. These assets are then written off over their useful lives.
Capital works deductions are based on construction expenditure and as such apply to; a building or extension (e.g. adding a room, garage, patio or pergola), alterations (e.g. removing/adding an internal wall) and structural improvements (e.g. adding a gazebo, carport, sealed driveway, retaining wall or fence). To seek any specific information on possible capital works deductions, feel free to contact anyone here at CNS Partners to give you a helping hand.