Your Guide to Tax Deductions for Investment Property in Australia

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The Insider @ Houst
Last updated on
September 13, 2023

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Your Guide to Tax Deductions for Investment Property in Australia

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Property investment isn't exclusive to the high-fliers or giant corporations; it's a game anyone with a keen eye for the market can play. Many smart Aussies have dipped their toes into property investment, and with careful planning that matches your income, expenses, and existing debt, it can bring fantastic rewards.

When you weave an investment property into your financial strategy, it's like planting seeds that can yield a bountiful harvest. Here's the trick: You can manage the costs of renting out and maintaining your investment property by claiming them as tax deductions. In this article, we’ll discuss tax deductions for investment property Australia. So, let’s get started!

Table of Contents

Positive vs. Negative Gearing Demystified

Let's dive into negative gearing vs positive gearing in property investment:

Positive Gearing

Your investment property is 'positively geared' when the expenses related to renting it out (which can be claimed as tax deductions) are less than the income it generates in a given financial year. In simpler terms, you profit from owning and leasing the property.

Negative Gearing

Conversely, your investment property is 'negatively geared' when these annual deductible expenses surpass the income from renting it out, resulting in an overall loss. The government permits property investors to deduct these losses from other income sources, like their salary or additional investments.

These allowances are aimed at improving housing affordability. The idea is that investors might be more inclined to keep rent affordable if they can offset their losses through tax benefits over time.

Tax Deductions for Investment Property Expenses

Investors often face various expenses for managing and maintaining their investment property throughout the year. You can claim these costs as tax deductions for investment property Australia for the time your property has been rented out (or as long as it's been available for rent in some cases). Here are some expenses you can potentially deduct:

Managing and Maintaining Your Property

Property management and maintenance can encompass a wide range of expenses. Here's what you might be able to claim as tax deductions:

  • Advertising Costs: Expenses for advertising the property for rent can typically be deducted.
  • Cleaning and Gardening: Costs related to cleaning, gardening, and pest control can usually be claimed as deductions.
  • Strata Fees: If your property is part of a corporate body, you can claim strata fees, but do not double-dip by claiming maintenance fees already covered by strata.
  • Utilities: If your tenants don't cover certain utilities, such as water supply, as part of their lease agreement, you can generally claim these expenses as deductions.

Property Agent Fees

If you enlist the services of a property agent to handle your investment property and its tenants, you can typically claim their fees as tax benefits of investment property. This might also cover advertising costs if you've arranged advertising through the agent.

Claim Legal, Accounting, and Admin Costs

Managing an investment property often involves seeking guidance from lawyers and accountants. The good news is that your fees for their services are typically deductible on your tax return.

You can claim some costs for personal equipment used for investment property admin tasks at home, e.g. phone, internet, stationery. However, it's crucial to ensure that you only claim the portion of these costs directly related to your investment property's management.

Claim Home Loan Interest

The interest on your home loan can be a substantial owner of investment property tax deductions, depending on your mortgage size and interest rate. To claim interest payments on your tax, you must have purchased the property to rent it out and repay an investment home loan.

In some cases, buyers may use a property for both owner occupancy and investment, especially if it has a granny flat or a spare room that can be rented out. In such instances, deductions for interest payments should align with the income-earning portion of the property. If you share the space with a roommate, the situation can be complex, so it's advisable to consult qualified experts for guidance.

Council Rates, Land Tax, and Water Rates

Council rates, land tax, and water rates (including charges and usage) can all be claimed as tax deductions as long as your investment property is rented out. It's important to note that you cannot deduct taxes and rates for any period when the building is not occupied.

When it comes to land tax, review the specific requirements of your state or territory, as the rules and timing for claiming these costs may vary.

Repairs to Maintain the Property

When it comes to repairs around the property, you can typically deduct immediate repair costs as long as they are distinct from any home renovations that increase the home's value. For example, fixing a leaking ceiling is deductible, but retiling the entire roof for purely aesthetic reasons may not be.

Insurance 

Home insurance, which covers the structure of your property, is advisable from the moment you purchase a property to ensure financial protection against unforeseen events. This expense is also claimable on tax for investment property owners. Also, a specialised policy called 'landlord insurance' covers owners for potential costs like loss of rental income under certain circumstances and damages caused intentionally by tenants.

Long-Term Investment Property Tax Deductions

Some investment property expenses need to be claimed over a longer period, spreading the deduction over time rather than claiming the full amount in a single financial year. Here are some examples:

Depreciation of Property and Appliances

You can claim depreciation on your investment property, which covers the cost of general wear and tear over time. This deduction falls into two categories:

  • Division 40 assets (plant and equipment): These are easily removable fixtures like carpets, dishwashers, and air conditioning units.
  • Division 43 assets (capital works): This category includes the structure of your property, permanent fixtures, and improvements you make to the building, such as adding a room. The deduction rate for capital works depends on the construction date or subsequent renovations, so it's a good idea to use the Australian Taxation Office's (ATO) depreciation and capital allowances tool for estimates.

Borrowing Expenses

Property investors can claim borrowing expenses over five years. These expenses include fees for home loan applications, property valuations, and lenders' mortgage insurance (LMI). Note that these tax deductions for investment property Australia do not consider ongoing interest repayments.

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The Insider @ Houst

The Insider @ Houst

The Insider team at Houst is dedicated to providing up-to-date and relevant information on short-term rentals. If you have hosting inquiries, please write to us at expert@houst.com. For guest inquiries, reach out at guest@houst.com. We are here to help you navigate the world of short lets and look forward to assisting you with your needs.

The Insider @ Houst

The Insider @ Houst

The Insider team at Houst is dedicated to providing up-to-date and relevant information on short-term rentals. If you have hosting inquiries, please write to us at expert@houst.com. For guest inquiries, reach out at guest@houst.com. We are here to help you navigate the world of short lets and look forward to assisting you with your needs.

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