What tax can you claim on an investment property?
Can you believe that we are almost halfway through March already? Where is this year going? With almost a quarter of the way through the year and three months to go until the end of the financial year, it’s time to start thinking about doing all you can to reduce your tax bill and not let the taxman have all your hard-earned money.
If you are earning an income of $18,201 or more a year, you will be paying some level of tax, and for those on a high income you will be on a much higher tax bracket and could be paying as much as 47% in tax!
Investment properties can reduce your taxable income
One way of massively reducing your taxable income is through buying an investment property. Although an investment property can offer you some great financial rewards, saving tax should not be the sole reason for buying an investment property. There’s much more to it than that and it’s worthwhile speaking to one of our Property Consultants at iBuyNew to determine your property goals, your motivation for investing and what properties could be suitable for you and your budget.
As a property investor, there are all kinds of tax savings you can claim which you might not even be aware of, so it’s worthwhile speaking to a good accountant who can not only assist you with your tax returns (tax deductible), but can also tell you exactly what you can claim.
So, if you want to reduce your tax (and let’s face it, who doesn’t), here are 21 tax claimable expenses that you should be including in your annual tax return if you own an investment property.
21 Expenses you can claim on an investment property
1. Advertising for tenants
If your investment property is available for rent, then you can claim the cost for advertising for tenants. This could include the cost of advertising in the local newspaper or through advertising with your local real estate agent or property manager on a property portal.
2. Bank Charges
Did you know that the bank charges on your loan account are tax deductible? Bank charges usually take the form of monthly fees, whilst you can also claim any bank charges on a separate bank account that you specifically use for your property.
3. Body Corporate fees and charges
Body corporate fees tend to be paid on a quarterly basis and covers the building running costs. These fees are typically associated with apartment buildings for example and cover the costs for things like communal lighting, lifts, pest control, insurance, repairs and gardening.
4. Borrowing expenses
When you purchase a property, you will normally have to borrow money from a bank or lender and there will be a cost associated with this. Borrowing expenses are not deductible upfront, but can be deducted over a number of income years. Borrowing expenses (not including interest, which can be deducted immediately) that you can claim include stamp duty charged on the mortgage, loan establishment fees, title search fees charged by your lender, costs for preparing and filing mortgage documents, mortgage broker fees and valuation fees.
If your total borrowing expenses are $100 or less, a full deduction can be claimed in the income year that they are incurred. For total borrowing expenses of over $100, this deduction is spread over five years or the loan term, whichever is shorter.
5. Capital works
You can receive deductions for construction expenditure (capital works deductions) on residential rental properties built after 17 July 1985 and this is generally spread over a maximum of 40 years. The deduction is at a rate of 2.5% per annum. You can claim the highest amount of capital works in year one on a newly built property and it’s best to get a reputable Quantity Surveyor to prepare a depreciation schedule which will show you the amount that can be deducted each year. The older the property, the less you can claim. Note: you can only claim deductions for the period the property is rented.
6. Cleaning Costs
If you need to clean your property, such as when tenants move out then you can claim the cost of hiring a cleaning company to do this for you.
7. Council Rates
Property owners must pay council rates which helps to fund the local community and infrastructure such as footpaths, new road, parks, playgrounds, sporting fields, swimming pools and public amenities. Council rates are tax deductible and can be paid as one annual lump sum, or in quarterly instalments and is based on the property value.
Depreciation is one of the larger deductions that you can claim, so it’s best that you get a Depreciation Schedule drawn up by a reputable Quantity Surveyor before the property is tenanted. If you buy a brand new property, then the depreciation claims are highest in year one. You can claim on the building itself (capital works), as well as fixtures and fittings such as air conditioning, heating, dishwashers, refrigerators and freezers, microwaves, blinds, curtains, washing machines, hot water systems and more. Some of these assets can be depreciated immediately or can be depreciated over time.
9. Gardening and lawn mowing
If your property has a garden then you can claim against expenses such as garden tools replacement, mower expense, dumping fees, fertilizers, replacement plants and tree lopping.
10. Insurance (building, contents, public liability)
When you own an investment property it’s in your best interests to protect yourself by taking out insurance including building insurance, contents insurance and public liability. Plus, insurance is tax deductible. Insurance can protect yourself against damage, theft, loss of rent, rent default and more.
11. Interest expenses
When you take out a loan there will be interest attached to this. However only the interest charges are tax deductible and not the principal or capital repayments part. This is why many property investors just take out an interest only loan, but it’s best to speak to a Mortgage Broker to find out what loan type will suit you.
12. Land tax
As a property owner you also have to pay land tax and this is a tax levied on the owners of land and the amount is determined by the land value. The good news is that this is tax deductible. Your assessment notice, which you will receive when you complete a land tax registration form will inform you how much you need to pay.
13. Legal fees
When you first buy an investment property you will be speaking with a solicitor or conveyancer and getting them to look through the contracts for you. The same applies when you seek their assistance when you come to sell your property. Any legal fees you encounter when buying or selling property are included in the capital gains tax calculation and are not tax deductible. Legal expenses that can be claimed include the costs of having to evict a non-paying tenant or the costs involved with terminating a lease.
14. Pest control
Depending on the age of the property, the location or building it’s housed in you may have to pay for your property to be sprayed or fumigated against pests. However, these costs are tax deductible so it’s worth doing.
15. Property agent fees or commissions
When you rent your property out you can either manage this yourself or enlist a property manager to manage this for you. A property manager can assist with finding tenants, reference checks, leasing fees, inspections and more, and their fees are tax deductible. They will normally charge a monthly fee and this comes out of your rental income.
16. Repairs and maintenance
If your property requires any repairs and maintenance then repairs tend to be tax deductible. A ‘repair’ is classed as restoring an item to the condition it was in before it deteriorated and can be tax deducted immediately. However, if renovations or improvements are made then these typically are deductible over more than one year.
Don’t forget to keep all your receipts for any stationery or postage expenses you incur throughout the year. This is one tax deduction which is often forgot about.
18. Tax-related expenses
If you obtain any tax advice from a registered tax agent such as your accountant or incur any tax preparation fees and accounting charges then all of these fees are tax deductible.
19. Telephone expenses
Along with stationery costs, telephone expenses can often be forgotten about. If you make any telephone calls related to the running of your investment property, then these are also tax deductible.
20. Travel undertaken to inspect the property or to collect rent or carry out maintenance
If you undertake any travel to inspect your property, collect rent or to do some maintenance then the costs undertaken to do this are tax deductible. This can include car hire, airfares and accommodation. You cannot claim these expenses in full if you use it as part of a holiday for example.
21. Water charges
If you pay the water bill then your water charges are tax deductible. You cannot claim this if your tenant pays the water bill.
Remember, that you can only claim tax as a property investor. You cannot claim as an owner occupier if you live in the property or the property is not tenanted. To view the full and most up to date list of all the taxable expenses you can claim, it’s best to view the Australian Taxation Office website.
It’s also worth noting that when you own an investment property, then to make tax time far easier for you, it’s best to get yourself organised and file away receipts and bank statements in an orderly fashion, especially if you own more than one investment property. You should keep receipts for a minimum of three years from the date of lodgement.
If you are serious about reducing your taxable income through property investment, then our Property Consultants are here to help. To learn more about how much tax you could save through buying an investment property, get in touch with the iBuyNew team today by calling us on 1300 123 463.