Updated: Jul 9
CATS4TAX – Tax Tip #10
1. Apportion expenses and income for co-owned properties
Declare rental income and expenses according to the legal ownership of the property (as per the title deed).
2. The property must be available for rent
You must be able to show a clear intention to rent out the property. Advertise the property and set the rent in line with similar properties in the area.
3. Initial repairs and capital improvements
Repairs relating directly to wear and tear or other damage as a result of renting out the property can be claimed in full in the same year the expense is incurred. Replacing an entire structure when only part of it is damaged classified as an improvement. Initial repairs for existing damage at the time of purchase are not immediately deductible, but can be claimed over a number of years as a capital works deduction.
4. Borrowing expenses
Borrowing expenses can be claimed in the year the expense is incurred if less than $100. If greater than $100, the deduction is spread over 5 years. Examples of borrowing expenses include; loan establishment fees, title search fees and costs of preparing and filing mortgage documents.
5. Purchase costs
Purchase costs cannot be claimed as a deduction. These include; conveyancing fees and stamp duty. These can be factored into the capital gains calculation, when the property is sold.
6. Loan Interest
You can claim interest as a deduction if you take out a loan for a rental property. If the loan’s purpose is partly for a rental property and partly for private purposes eg. a holiday, only claim the interest which relates to the rental property.
7. Construction costs
Building costs, including extensions, alterations and structural improvements can be claimed as a capital works deduction. A quantity surveyor can estimate previous construction costs, where the taxpayer is not the first owner of the property
8. Claiming the right proportion of your expenses
If your rental property is let to family or friends below market rate, you can only claim a deduction for that period up to the amount of rent received.
9. Record Keeping
You must have evidence of your income and expenses to claim all the deductions you are entitled to. Keep records over the period of ownership and for five years after the sale date.
10. Capital Gains
A capital gain is the difference between the cost and improvements to the property and the sale price. Costs must not include amounts already claimed as deductions eg. capital works and depreciation costs. If you make a capital gain, include the gain in your tax return for the relevant income year. A capital loss can be carried forward and deducted from capital gains in future years.
If you require assistance with claiming rental property expenses or need further information contact your tax professional.
Get in touch with CATS4TAX:
0404 483 685