Mr Accountant, what expenses can I claim?
What expenses can I claim?
Below is a table of common expenses for property investors, along with professional guidance as to what expenses are claimable, or not.
Decline in value of depreciating assets – The ATO recognises that components of your investment property reduce in value as they age, much like your car. This loss of value can be claimed each year by having a Tax Depreciation Assessment. A Real Property Matters depreciation schedule will calculate the reduction in value on all eligible components of the investment property and provide a yearly tax saving claim that can be seen in a 40 year report.
Capital works – Is a decline in value of the properties main structure and can also include any fixed assets that belong to the property. There are certain dates that need to be considered when assessing capital works deductions. To calculate the capital works deductions, the building structure or the fixed asset needs to be assessed by a recognised construction professional. Real Property Matters can assist you with these capital works calculations.
Repairs and maintenance – The investor can claim these costs as a 100% deduction in the financial year that they occurred. There must be care taken when claiming an expense as a repair and not as an improvement. Please refer to the previous article ‘Repairs and Maintenance or Capital Improvements’ for assistance and if there is still any doubt, please contact the Quantity Surveying Team at Real Property Matters for clarification.
Claiming borrowing expenses – The types of borrowing expenses listed below can be claimed as income tax deductions for taking out a loan to purchase a rental property:
- Stamp duty charged on the mortgage
- Loan establishment fees
- Title search fees charged by your lender
- Costs (including solicitors’ fees) for preparing and filing mortgage documents
- Mortgage broker fees
- Fees for a valuation required for loan approval
- Lender’s mortgage insurance, which is insurance taken out by the lender and billed to you.
Claiming interest expenses – You can claim the interest charged on the loan for income tax deductions in the year that it occurred if the interest charged was used for:
- Purchase of a rental property
- Purchase of an asset for the rental property (e.g. to buy hot water system)
- To make repairs to the rental property (e.g. repair a front fence)
- To finance property renovations on the rental property, which is currently rented out, or which you intend to rent out (e.g. to add a pergola)
- Purchase land on which to build a rental property.
**You may also be eligible to claim pre-paid interest for a period up to 12 months in advance.**
Claiming legal expenses – You can claim legal expenses as an income tax deduction if the expense was incurred for the purpose of:
- Evicting a non-paying tenant
- Taking court action for loss of rental income
- Defending a damages claim in respect of injuries suffered by a third party on your rental property.
What are capital expenses? – Expenses you incur when purchasing/acquiring or selling/disposing of your rental property are capital expenses, these include:
- Conveyancing costs paid to a conveyancer or solicitor
- Title search fees
- Valuation fees (when it is a private valuation conducted by your solicitor)
- Stamp duty on the transfer of the property.
You may be able to include capital expenses when calculating the ‘cost base’ of your property. The cost base of a capital gains tax (CGT) asset is generally the cost of the asset when you bought it.
However, it also includes certain other costs associated with purchasing/acquiring, holding and selling/disposing of the asset.
This can help you reduce the amount of CGT you pay when you sell your property.
so speak to your Accountant or Financial Advisor.