If you invest in a rental property or rent out your current property, you will need to:

• Keep accurate records right from the beginning;
• Know what expenses can be claimed as deductions; and
• declare all rental-related income in your tax return.

You can claim a deduction for your related expenses for the period your property is rented, or is available for rent. These expenses include:

• Management and maintenance costs, including interest on loans, which can generally be claimed immediately through deducting against your current year’s income; and
• borrowing expenses, depreciation, and capital works spending that are deducted over a number of years.

You can’t claim:

• Expenses not paid by you, such as water or electricity charges paid by your tenants
• Acquisition and disposal costs, including the purchase cost, conveyancing and advertising costs, and stamp duty on the title transfer. Instead, these are usually included in the property’s cost base, which would reduce any capital gains tax when you sell the property; and
• GST credits for anything you purchase to lease the premises, as GST doesn’t apply to residential rental properties. However, when claiming the expense as a deduction, you claim the total amount you have paid, inclusive of GST, if applicable.

Expenses may be deductible for periods when the property is not rented out, providing the property is genuinely available for rent – that is:

• The property is advertised, giving it broad exposure to potential tenants; and
• Considering all the circumstances, tenants are reasonably likely to rent the property.

You will need to apportion your expenses to determine the deductible amounts if:

• Your property is available for rent for only part of the year
• Only part of your property is used to earn rent; or
• You rent your property at non-commercial rates.

If you prepay an expense, such as insurance or interest, that covers a period of more than 12 months, you may need to spread your deduction over two or more years.

For more information on rental property deduction, contact IP Tax today to get in touch with a property tax accountant that specialises in helping you with your deductions and maximising your claims.