Calculating what are legitimate tax deductions for landlords can be tricky.
It is not surprising this time of year to see the ATO announce crack downs on areas where they feel tax revenue is slipping through the net. This week was landlords, capital gains and work-related tax deductions.
ATO claim 9 out of 10 landlords make mistakes on their annual return.
While not part of the ATO’s statement, it is likely many legitimate deductions are not being claimed by landlords. Especially depreciation or the amortisation of investment loan costs.
Investment owners should ensure all legitimate deductions are claimed. The best way to capture general expenses is have your agent pay your bills on your behalf from the rental income. You then get a full statement at the end of the financial year showing all the income and expenses which can be simply sent to your accountant.
I am not qualified to provide tax advice and your accountant will advise you based on your personal situation. The ATO website is also very helpful in detailing what is and isn’t deductable.
General or more obvious tax deductions for a rental property.
| property agent’s fees and charges | advertising for tenants |
| body corporate fees and charges | land tax |
| council rates | water charges |
| cleaning | gardening and lawn mowing |
| pest control | interest expenses |
| pre-paid expenses | repairs and maintenance |
| legal expenses. | insurance (building, contents, public liability, loss of rent) |
Deductions over several years
There are deductions like depreciation and borrowing expenses which can be deducted over several years and under certain circumstances. These include,
| loan establishment fees | stamp duty charged on the mortgage |
| title search fees charged by your lender | mortgage broker fees |
| fees for a valuation required for a loan approval. | lender’s mortgage insurance |
| costs for preparing and filing mortgage documents (incl Solicitors fees) | depreciation of assets and capital allowance of property |
If you don’t have a current depreciation schedule you may be missing out on valuable tax deductions. Wood Property have made it easy to get a depreciation schedule by partnering with MCG Quantity Surveyors.
Here is the online application page.
What is not tax deductable.
Non legitimate deductions include,
| Borrowing cost not directly related to the investment property. | Principal repayments on the investment loan. |
| Travel or personal expenses to inspect the property (since 1st July ’17) | Purchasing costs like stamp duty on the property or legal fees |
The ATO quoted errors made in the returns by investment owners. One was claiming the total annual interest cost of a loan for an investment property when part of that loan included things like a car or works to your home. Obviously only the proportion of interest expense related to the investment property is deductable. Another error quoted was not disclosing short term rental income generated from a home and avoiding the CGT impact of that.
Last week’s Federal budget allocated $89.6 million to implement the crackdown with the expectation of increasing their tax take by $474.9 million from these areas.
