If you own a rental property, you may be eligible to claim various expenses as deductions in the income year they are incurred, provided your property is rented out or genuinely available for rent. To claim these deductions, you must:
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Incur the cost yourself: You cannot claim deductions for costs paid by tenants or other parties.
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Maintain adequate records: Keep documentation to substantiate your claims if evidence is requested.
Certain rental expenses, such as capital works and borrowing expenses, must be claimed over several years.
Immediate Deduction Expenses
You can claim an immediate deduction for the following expenses:
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Advertising for tenants
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Body corporate administrative fund fees and charges
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Council rates, water charges, land tax
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Cleaning, gardening, and lawn mowing
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Pest control
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Insurance: Building, contents, public liability, and loss of rent
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Interest expenses
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Pre-paid expenses
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Property agent's fees and commission
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Repairs and maintenance
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Legal expenses
Body Corporate Administrative Fund Fees and Charges
You might be eligible to deduct certain body corporate fees and charges. Not all fees are fully deductible in the year incurred. Body corporate fees are payments to manage the property and maintain common areas, governed by strata title legislation specific to each state and territory.
These fees may cover:
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Day-to-day maintenance expenses: Such as insurance premiums and garden maintenance.
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Special purpose funds: For specific expenses like roof repairs.
Regular payments to body corporate administration funds or general purpose sinking funds that cover ongoing administration and maintenance can be deducted immediately. However, special levies for capital improvements are not deductible. Instead, you may claim a capital works deduction once the work is completed.
Pre-paid Expenses
Pre-paid expenses are costs incurred for services to be provided in a future income year. Examples include an insurance premium paid on January 1st for the entire year or pre-paid interest.
You can claim an immediate deduction for:
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Expenses under $1,000
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Expenses of $1,000 or more: If the eligible service period is 12 months or less and ends in the next income year.
The eligible service period starts on the later of the day the service begins or the day the expense is incurred and continues until the service ends or for up to 10 years. For expenses over $1,000 with a service period over 12 months, deductions are spread over the shorter of the service period or 10 years.
Legal Expenses
Legal expenses related to your rental property can often be deducted in the year incurred if they are for generating rental income. Deductible legal expenses include:
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Evicting a non-paying tenant
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Court action for loss of rental income
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Defending claims for injuries on your property
Solicitor’s fees for loan document preparation can also be deducted as borrowing expenses, spread over the loan term or five years, whichever is shorter. Most other legal expenses are capital in nature and cannot be deducted. However, they may be included in the cost base when selling the property.
Land Tax Expenses
If you earn rental income, you can claim a land tax deduction in the year the liability is incurred. This includes assessments for past periods, which should be amended in the relevant tax returns.
You can claim land tax deductions for:
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Current year: As a deduction in your tax return.
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Prior years: By amending the relevant year's tax return.
Land tax deductions do not require apportioning when you begin using the property as your main residence or sell it. Any land tax adjustments must be declared as rental income upon sale.
