Putting your money into bricks and mortar has been a traditional stalwart of investing for generations of Australians, and continues to be viewed as a solid place to park spare cash and build wealth in the long term. For many years a lot of us seem to have heeded the quote attributed to Mark Twain: “Buy land, they’re not making it anymore.”
Although property has the reputation of being less volatile than say the sharemarket, this isn’t necessarily always the case. Valuations for property can rise or fall depending on many influences, and interest rates are ever changing, which makes maximising allowable tax deductions a priority for every rental property owner.
However, it is not uncommon for first-time rental property owners to make some mistakes when claiming rental deductions on their first tax return as a new landlord. These mistakes could end up being costly, with the ATO seeming to have a continual focus on rental property deductions every tax year.
What are these mistakes?
The ATO has identified some of the common errors that have been made by rental property owners in past income years. These include:
Which deductions are allowable?
There are two categories of rental property expenses you can claim:
While a “non-capital” outlay to repair damage, defects or deterioration can be claimed as an immediate deduction, other costs associated with a substantial structure, such as a fence, are considered to be capital expenditure and need to be deducted over a number of years.
The amount of time the deduction for such capital expenditure is spread across depends on the type of expense incurred. For example, borrowing expenses in respect of a loan is spread over the lesser of five years or the life of the loan; assets that depreciate in value do so over their “effective life”; and certain construction work deductions may even have to be spread across decades.
Below are further sundry costs that would typically be deductible:
Remember, keeping accurate records are essential to ensure you only pay the right amount of tax.
What you cannot claim
Common expenses that are not deductible include:
The above is not an exhaustive list of all claimable and non-claimable rental property expenses. And remember to check the ATO’s full list of depreciation tables for capital expenditure deductions.