Tax deductions for your investment property
What you can claim on investment properties
Investment properties make up for about a third of all home loans in the country. With so many tax deductions for investment properties in Australia, it’s no surprise why so many savvy investors are getting into real estate.
To make sure everything is above board, landlords and property investment owners need to be aware of what they can and can’t claim. After all, the last thing anyone wants is to get in trouble with the Australian Taxation Office (ATO) for incorrectly filing a tax deduction claim on their rental property.
Invest property tax deductions you can claim
Before anything else, remember that the items listed below are only deductible if used for investment purposes. According to the ATO, you can generally claim an immediate deduction against your current year’s income for all expenses that are released to the management and maintenance of the property.
It’s advisable to consult an accountant to find out what else you may be able to claim on your property.
1. Advertising
Using advertising platforms to find tenants for your rental property is a tax-deductible expense. Marketing includes online, print, brochures, signs, and other advertising expenses that can be claimed as a tax deduction.
2. Loan interests and bank fees for loan servicing
You can claim interest accrued on your regular loan repayments as an investment expense. You may also claim any bank fees related to servicing that loan.
Some investors take out interest-only loans to take advantage of this investment property tax deduction. It allows investors to deduct their full repayments for a short period before their loan reverts to a standard loan with both principal and interest repayments. Also, you can only claim a deposit on the interest portion charged on your investment loan.
Take note, you can’t claim repayments made on interest charged if you refinanced part of the mortgage for a private purpose. Even if you’ve used equity from the property as security in the refinanced loan, you’re not allowed to claim interest on that investment property.
3. Council rates
Council rates can only be claimed while the property is occupied by a tenant. If your rental property was only tenanted for 250 days out of the year, you can only claim council rates for those 250 days. The council rates can be deducted in the same year the rates were paid.
4. Land tax
If the dwelling on your investment property is rented out, you can claim land tax as a deduction. Some state governments have offered land tax discounts for landlords who provided rent relief for their tenants impacted by COVID.
5. Strata fees
If your investment property is on a strata title (apartments and townhouses) you can claim the cost of body corporate fees as a tax deduction.
6. Depreciation
You can claim general wear and tear as depreciation on your tax deduction. There are types of depreciation that you can claim like building depreciation and appliance depreciation. To claim building depreciation, you need to make sure your property meets certain criteria.
Other assets that can depreciate include timber flooring, carpets, curtains, and furniture.
7. Repairs
Repairs and other types of maintenance can be claimed as a tax deduction in the same income year if the repairs are a result of wear and tear like fixing a broken appliance or repairing storm or flood damage.
8. Pest control
Professional pest control costs are tax deductible and you or your tenant can claim this expense depending on who paid for it.
9. Insurance
If you have insurance on your investment property, you can claim the costs of insurance in your tax return. Landlord insurance typically covers tenant-related risks such as damage to the contents and building, or loss of rental income.
10. Legal expenses
If you need to hire legal professionals for something related to the tenant, such as eviction or an unpaid lease, you can claim this as a tax deduction.
Are there other tax benefits for investment properties?
Aside from tax deductions, there are other perks of owning an investment property that you can take advantage of. See if you’re eligible for any of the tax discounts below:
Negative gearing
Negative gearing is when you deduct losses made on your investment property in a financial year from your total taxable income. You make a loss on an investment property when the pre-tax costs of owning and paying for the property (maintenance + loan repayments, for example) are greater than the rental income you receive from it.
This means you’re shifting that loss somewhere else to lower your taxable income. This is useful for minimising short-term losses until you eventually sell the property for a profit. Selling for a profit also attracts the capital gains tax (CGT).
Capital gains tax
Any capital asset sold, like property or shares, comes with either a capital loss (selling for less than the purchase price) or a capital gain (selling for more than the purchase price). The capital gains tax is applied to profits made on investments, where the capital gain made is added to your assessable income.
CGT can take a big chunk out of profits made on house sales. However, if you've held the property for more than 12 months, the capital gains tax is reduced by 50%. You would only need to add half of the profit made to your assessable income.
Investment property deductions you can’t claim
The things that can't be claimed on an investment property can be boiled down to:
- Any expenses relating to your personal use of the property. You can only claim expenses on parts of the house used for investment purposes.
- Any expenses paid for by the tenants. If you didn’t pay for it, you can’t claim it.
- Borrowing costs where you've borrowed against the equity in the property for personal use.
- The principal amount of the loan used to purchase the investment property.
- Costs related to the purchase or sale of the property.
How to claim deductions on your investment property
The ATO has started cracking down on numerous rorts, including those pertaining to investment properties. Making misleading or fraudulent claims on your investment property can lead to big fines, so it's important to get it right.
As a rule, you shouldn’t claim tax deductions that you can’t provide proof for. It’s best to keep all relevant receipts, invoices and bank statements as well as proof of rental listings and advertisements.
The ATO states rental income and expense records need to be kept for five years. Make sure you keep either physical or digital records and have them on hand when completing your tax return. If in doubt, consult the ATO or a qualified accountant or adviser for help maximising your tax return on your property portfolio.
Don't forget your rental income is assessable
According to the ATO, rental income is considered assessable income and is therefore taxable. The current marginal tax rates are as follows:
| Taxable Income | Tax rate |
|---|---|
| 0 – $18,200 | Nil |
| $18,201 – $45,000 | 19c for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5c for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37c for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45c for each $1 over $180,000 |
Source: Individual Income Tax Rates, Australian Taxation Office 2023-24
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