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Investment Property Tax Deductions in Australia

Have you just started earning income from a rental property? Or, maybe you weren’t sure how taxes on rental income affected you, and now you’re wanting to do a bit more research on the matter.

We have good news for you, because you’ve come to the right place if you want to know anything about rental property deductions.

In this article, we will walk you through all the things you should know if you own a rental property when it comes to taxation. So, get comfortable and let’s work out what you need to know for your renting income tax.

What qualifies as a tax deduction?

There are only three main requirements that qualify as an expense for tax deductions, which is calculated against your income:

  • You must have spent the money and not have been reimbursed
  • It must be related to your job
  • You must have a record to prove it

What constitutes an expense as “related” to your rental income you might ask?

Here’s a definition of your taxable income, and a list of rental income tax deductions.

What makes an expense related to your rental property?

For an expense to be directly related to your rental property, it has to be directly related to your ability to generate income from your rental property. The best way for us to explain this is with an example:

If you own a rental property, renovating the garage would be an expense directly relating to your ability to generate income, even though you also gain from the renovation.

However, if you work in an office and your boss likes you to smell nice, the purchase of cologne will not be an expense directly relating to your income, because you can still do your job without the cologne.

See the difference?

If you’re unsure, One Click Life’s easy-to-use platform will help you qualify your deductions – along with some help from our qualified tax team.

What is your taxable income

Your taxable income is money generated from all sources each year. Your taxable income includes:

  • PAYG summaries
  • Pensions and government allowances
  • Interest earned (banks etc)
  • Dividends
  • Rental property income
  • Business income
  • Other income earned (capital gains etc)

How are rental expenses classified as a deduction

Just because you have a property, does that mean that you can claim rental expenses on it? Unfortunately not.

According to the ATO, tax investment properties must be currently tenanted or “genuinely available for rent”. The proportion which you are able to deduct from any expense has to come from the proportion that will generate income.

To help people understand, the ATO has grouped expenses into two categories:

  1. Rental expense you can claim now
  2. Rental expense you can claim over several years

What can I claim on tax right now?

The things that you can claim in the same year as you buy them are the things incurred with the day-to-day management of your rental property. These expenses include:

  • Advertising expenses for your property
  • Fees and charges to body corporate
  • Council rates
  • Land tax
  • Insurance for your rental property
  • Interest expenses on loans or repayments
  • Prepaid expenses for your rental property
  • Agent fees and commissions
  • Utility costs
  • Cleaning expenses for your rental property
  • Gardening costs
  • Maintenance costs & repairs
  • Pest control
  • Legals expenses if needing to engage a lawyer

What can I claim on tax in the future?

The things that you can deduct over several years are much more capital focused and usually a bit harder to deduct in a way the ATO wants you to. It’s usually a good idea to get some help from a professional so you know your tax deductions are in order.

The things you can deduct over several years include:

  • Borrowing expenses

If you borrow money over $100, your deduction can b e spread over five years or the length of the loan (whichever is shorter). If the loan is less than $100, you can claim the entire loan as a deduction in one year.

  • Depreciating assets

A depreciating asset is something that has a limited effective life and can reasonably be expected to decline in value. Each asset for your rental property will have an effective life.

For help trying to claim depreciation expenses for your tax return, log in or sign up to our easy-to-use platform.

  • Capital works

If you renovate or upgrade any structural work to your rental property, and it is going to help you generate income, you can claim the expense as a deduction over several years.  See our blog on capital works for more information on capital works.

Maximising your tax return with an online tax agent

There will be more tax tips and deductions for your rental property that aren’t on this list. Tax deductions are not only industry specific, but also change from individual to individual.

The best way to claim the most you can (which will maximise your money) is with One Click Life.

The more you deduct, the less tax you pay and the more money you can spend on yourself. Clearly, you will want to deduct the most you can, and the sure-fire way to do that is with OCL’s easy-to-use platform.

If you can claim OCL’s fees back on tax as a deduction too, why wouldn’t you use our platform to minimise your tax payable?

One Click Life offers online tax returns at your fingertips in an easy-to-use platform run by some of the best heads in the industry. Your tax return can be done in just 60 seconds and is overseen by one of our pros!

How easy and stress free is that?

Taxes, health insurance, and wills can be time-consuming and tedious. Our app allows you to be able to do this fuss-free, giving you a simple way to organise, track and manage all of your life admin in one place. Let One Click Life take care of your tax return, and life’s essential tasks so you can spend more time doing the things you love.