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Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.

 

Maximising your property returns

At a time of high interest rates and general weakness in the property market, investors need to be equipped with the knowledge necessary to cut their tax bill and maximise their returns. Here are a few tips on what you can and can’t deduct on your property investments.

What can be deducted – immediately!

1) Property management & maintenance expenses
- Advertising for tenants: directly by you or through your agent
- Body corporate fees or strata title fees and charges
- Cleaning
- Gardening/Lawn mowing
- Pest control
- Security patrol fees

2) Rates and taxes 
- Water rates, charges and usage
- Council rates
- Land tax- first time owners have to lodge an initial land tax return with the Office of State Revenue in each State. You have to initiate this. They will not chase you up but they will penalise you for late lodgement

3) Property agent
- Fees/commissions – including GST
- Postage and petties
- Statement fees and bank charges/fees
- Lease document expenses
- Letting fees

4) Administration expenses include
- Stationery used to maintain your rental records
- Postage on documents relating to property management
- Telephone calls relating to property management
- Legal expenses relating to debt collection or tenant problems
- Electricity and gas – where not covered by the tenant

5) Insurance
- Landlords
- Building
- Contents
- Public liability

6)  On acquisition – from the solicitor’s settlement letter
- Balance of council rates, water rates and body corporate fees

7) Repairs and Maintenance – relating to wear and tear or damage as a result of renting out the property. An expense is considered a repair when the functionality is being restored. For example, plumbing, electrical, handyman, etc. But beware! The ATO does distinguish a repair from an improvement

8) Interest and loan a/c fees on loans to finance investment properties
- For the interest to be deductible, the loan must have been applied to acquire an income-producing asset, e.g. rental property

9) Travel expenses to:
- Inspect property
- Maintain property
- Collect rents
A full deduction can only be claimed if the sole purpose of the trip relates to the property. If it is combined with a holiday, expenses must be apportioned.

10) Cost of preparing a Quantity Surveyor’s report showing depreciation expenses and Special Building Write-off

11) Seminars – cost of attending property investment seminars – only to the extent that they relate to operating or maximising the return on currently owned properties

What can be deducted – over a number of years

1) Borrowing expenses – deductible over the period of the loan where the loan is less than five years. Otherwise, deductible over five years. Expenses deductible include:
- Loan application fee
- Lenders legal fees
- Title search fees
- Lenders mortgage insurance
- Stamp duty on mortgage
- Mortgage registration fees

2) Depreciation on Plant and Equipment, or Decline in Value of depreciating assets, in tax-speak

3) Depreciation on the building construction – the ATO calls it Capital Works deduction

4) Cost of installing any plant and equipment such as Hot Water Systems – are considered part of the cost of system – to be depreciated

5) Set of assets (e.g. dining table and 6 chairs) is to be depreciated in accordance with their effective life
- Each item cannot be separately deducted for being under $300, in the case of tables and chairs

What cannot be deducted

The following items are neither deductible nor considered to be of a capital or private nature by the ATO
1) On purchase
- Purchase price
- Stamp duty on purchase
- Legal/conveyancing fees
- Pest and property inspection
- Sourcing fee
- Renovations immediately after purchase
- Repairs immediately after purchase

2) On sale of a property
- Legal/conveyancing
- Advertising
- Agent fees

3) Pre-purchase expenses including (especially if property was not purchased)
- Attending seminars to acquire more property
- Cost of reports on property prior to purchase
- Travel to inspect property prior to purchase

4) Where the property was not available for rent, then all the expenses described above are not deductible, particularly relevant where the property is used as your personal holiday accommodation

5) Cost of improvements or renovations can only be depreciated over 40 years at 2.5% p.a.

 


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