What’s Tax Deductible and What Not for Property Investors?
Do you really know what’s tax deductible as a Property Investor?
We asked Garry Wolnarek B.Bus(Acc) FIPA – Property Tax Specialist from Wolnarek Tax Accountants this question and got some very detailed answers for you!
Garry told us:
“For a lot of people investing in property is a way to secure a safe financial future, but most investors are missing out on numerous deductions that can make your investment perform even better”
How much do you know about it? Here is how Garry continued:
“As a rental property investor most people are familiar with being able to deduct relevant expenses against the rental income you received or against your other income if the rental property makes a loss. However where most investors become unsure is which expenses you can claim and when”
Garry offers this 3 Point Checklist for all Property Investors:
- Running expenses – Running expenses (Normally Deductible immediately) are the typical expenses incurred in maintaining an active rental property.
- Establishment & Improvement Costs – Establishment and improvement costs are normally deducted over a number of years.
- Formation Costs – Formation costs are normally not deductible in the annual tax returns; however form part of the purchase price (cost base for future Capital Gains Calculations). Formation Costs can be incurred on the purchase and on the sale of the property
Would you like more explanation to these 3 Points from Garry? Here we go:
1. Running Expenses –
- Management & Maintenance expenses – this includes advertising for tenants -directly by you or where the agent charged you, Body Corporate fees or Strata Title fees and charges, Cleaning, Gardening/Lawn Mowing, Pest Control &Security patrol fees.
- Rates & Taxes – Water rates, charges & usage, Council rates , Land Tax & Electricity & gas – where not covered by tenant.
- Property Agents – Fees/commissions – including GST, Postage & Petties, Statement fees and Bank charges/fees, Lease document expenses letting fees.
- Administration expenses – Stationery used to maintain your rental records, Postage on documents relating to property management, Telephone calls regarding property management, Legal expenses relating to debt collection or tenant problems.
- Insurance – Landlords, Building, Contents & Public liability.
- On acquisition – from the solicitor’s settlement letter, the balance of council rates, water rates and any body
2. Establishment and Improvement Costs –
- Borrowing Expenses – deductible over the period of the loan where the loan is less than five years. Otherwise deductible over five years. This includes Loan Application fee, Lenders legal fees, Title search fees, Lenders mortgage insurance, Stamp duty on mortgage, Mortgage registration fees
- Depreciation on Plant & Equipment – ATO calls it Decline in Value of depreciating assets
- Depreciation on the building construction – ATO calls it Capital Works deduction
- Cost of installing any plant & equipment such as Hot Water Systems – are considered part of the cost of system – to be depreciated
3. Formation Costs- Not Deductible –
The following items are either not deductible or considered to be of a capital or private nature by ATO.
- On Purchase – Purchase price, Stamp duty on purchase, Legal/conveyancing fees, Pest & Property inspection, Sourcing Fee, Renovations immediately after purchase, Repairs immediately after purchase.
- On Sale of a property – Legal/conveyancing, Advertising & Agent fees & Pre-Purchase expenses including (especially if property was not purchased)
- Property Investigation – Attending seminars to acquire more property, Cost of reports on property prior to purchase & Travel to inspect property prior to purchase.
- Non Deductible Periods – Where the property was not available for rents, then all the expenses described above are not deductible (may form part of the cost base for CGT). Particularly relevant where the property is used as your personal holiday accommodation.
- Renovations -Cost of improvements or renovations will be depreciable over there effective life if deemed fixture & fittings or if deemed capital will be depreciated over 40 years at 2.5% p.a.
If you would like personal advice on your property investments please contact Garry directly by clicking here