With 30 June just around the corner, many property investors are scrabbling around, gathering those little bits of paper together and racking their brains for what they can and can’t claim for on their tax return.
If you are one of these people, don’t worry, you’re not alone – last year the Sydney Morning Herald reported 1.5 million households now own properties they don’t live in, and they won’t all be super organised!
Owning an investment property is like owning any other business, and there are some essential costs associated with running an investment property that can be claimed on your tax return.
If you are new to property investment, or even if you have had a property for a number of years, you may not be aware of all the tax benefits you can claim.
Here are some points to consider when it comes to maximising your tax return.
Claiming depreciation is a significant taxation benefit, and one which many investment property owners are unaware of. Depreciation is a non-cash deduction – you do not need to spend any money to claim it.
Capital works allowance or building write-off refers to the tax deduction for the building’s structure and items considered to be permanently fixed to the property. In a residential property, capital works deductions are available to be claimed at 2.5% for the ATO specified life of the property – 40 years and applies to residential properties built after 18 July 1985. For commercial and other types of non-residential properties, capital works deductions can be claimed either at 2.5% or 4% of the property’s historical construction cost depending on the age and type.
Here are a few examples of the depreciable items you may be able to claim under a capital works allowance for both residential and commercial properties: Kitchen cupboards, Clothes line, Doors and door furniture (handles, locks etc.), driveways, fences and retaining walls, sinks, basins, baths and toilet bowls.
A Depreciation Schedule should be carried out by a qualified person/company and being in the industry we can recommend a company who if they can’t find double their fee in deductions in the first full financial year, they will not charge for their services.
This may include expenses such as set up costs and management fees on your bank loan.
Interest on your mortgage or loan
You can claim your mortgage interest for the property as a tax benefit. However if you have taken out a loan for the property and for another private purchase, such as a motorboat, you cannot claim the interest for the private part of the loan, ie for the motorboat.
You can also claim interest if you have had to take out other loans for the property such as for major repairs or renovations.
Travel to See Your Property
This is something many landlords aren’t aware of, but you can claim travel costs if you legitimately have to see your property such as to inspect or repair the property.
If you use a real estate agent or property manager (such as us!), these fees can be claimed against your tax. The other benefit of using a property manager is they will handle a lot of other costs, such as advertising for tenants and maintenance, meaning you have less paperwork when it comes to tax time.
Other General Running Costs
These are some other running costs you may be able to claim on your tax return:
- Cleaning the property
- Advertising for tenants
- Body corporate or strata management fees
- Council rates
- Insurance (including building, contents and public liability)
- Legal expenses
- Land tax (where applicable)
- Maintenance – such as gardening, pest control and mould irradiation
Depending on your circumstances, there may be other expenses you can also claim for such as pest inspections and search fees.
Visit the rental property section of the Australian Tax Office website for more information.
Get an Accountant
Our advice is get a good accountant who specialises in property management – they are worth their weight in gold when it comes to tax time and there are plenty to choose from in the Newcastle area. Not only does a good accountant know exactly what you can and can’t claim for your situation and their costs are also a tax deduction, they will take a lot of the stress out of filling in your tax return!
If you’d like to know more about investment properties and the many benefits of using a property manager, our team would love to help. Give us a call on 02 4954 8833 or pop into our office.