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Here’s some friendly advice brokers can give their clients: with tax time just around the corner, they should be putting together the figures of everything they can claim as a tax deduction.
Your clients are entitled to claim for any expenses incurred whilst owning and maintaining each property. Although any rental profit they make will be subject to tax, by claiming the available tax deductions they can reduce their rental profit and ultimately reduce their taxable income to make the most out of their investment.
Here are some deductions they may be unaware of:
Advertising for tenants
If their property is available for rent, the cost of advertising for tenants is tax deductible. These costs include advertising with local real estate agencies, posting advertisements in newspapers or local publications.
Bank charges
The bank charges on loan accounts (usually in the form of monthly fees) are tax deductible. Clients should locate their bank statements to ascertain total bank charges for the income year.
Bills
Any utilities that your clients pay – as opposed to their tenants – are tax deductible. These include water, electricity and gas.
Body corporate fees
These are usually charged on a quarterly basis to cover the costs of maintaining the property.
Borrowing expenses
Borrowing expenses include: loan establishment fees, title search fees, costs for preparing and filing mortgage documents, mortgage broker fees, stamp duty charges, valuation fees and mortgage insurance.
Capital Works
Your clients can claim a tax deduction for construction expenditure or capital works. To maximise their tax deductions they can obtain a depreciation report which will list the year of construction, the construction costs and the deductible amount each year.
Cleaning
The cost of cleaning professionals and cleaning products for your clients’ investment properties are tax deductible.
Council rates
Council rates are imposed on landowners to help fund the cost of community infrastructure and services to the local municipality. Councils generally offer a one-off annual payment or a payment plan of quarterly instalments, and all payments are tax deductible.
Decline in value of assets
Your clients should obtain a depreciation report; alternatively, they will need to supply their accountant with information to support the purchase date and purchase price of each asset. Common depreciating assets are air conditioning units, removable floor coverings, window curtains and blinds, dishwashers, furniture, heaters, hot water systems, refrigerators and freezers, stoves, cook tops and range hoods, swimming pool filtration and cleaning systems, television sets and washing machines. The cost of a quantity surveyor’s report is also tax deductible.
Garden maintenance
Paying a gardener to trim the hedges, lay fertiliser or mow the lawn is tax deductible.
Insurance
Insurance on building, contents, public liability and landlord’s insurance are all deductible. While strata insurance is mandatory, it only covers the building, so your clients may want to consider protecting their home contents as well as the risk of defaulting tenants.
Interest on loans
Interest charges on a loan are tax deductible, but principal or capital repayments are not. Only the interest component directly related to your clients’ properties are tax deductible. If they are paying principal and interest on their loan then they will need to calculate the interest component for the year. They will need to locate the bank loan statements for each investment property to ascertain the interest paid for the income year. However, if they have the wrong loan structure, they may be missing out on potential deductions.
Land tax
Land tax is tax deductible. Land tax is a tax levied on the owners of land and it is based on the value of land. Your clients will be liable for land tax if they own or part-own vacant land, a holiday home, an investment property and a company title unit, or if they own a residential, commercial or industrial unit above a certain square metreage.
Legal costs
Tax deductible legal expenses include the costs of evicting a defaulting tenant and the costs of terminating a lease. Your clients cannot claim the legal fees they paid when they originally purchased the property until it is sold.
Pest control
If your clients pay for their investment property to be sprayed or fumigated by a pest controller, then they are generally entitled to a tax deduction.
Property agent’s fees and commission
A property agent charges fees for maintaining a property on an owner’s behalf. The charges for the year-end financial statement, reference-check fees, leasing fees and monthly rental statement fees are all tax deductible.
Repairs and maintenance
A repair is generally tax deductible. Renovations, improvements, replacements and extensions are treated differently to repairs and maintenance. Renovations, improvements, replacements and extensions are generally deductible over more than one year.
Servicing costs
The ongoing servicing costs of a hot water system, an elevator or a pool heating system are tax deductible.
Stationery and postage
Your clients should keep a record of all their stationery and postage expenses for the year and should not dispose of their records. This is an often overlooked tax deduction by investment property owners.
Telephone calls and rental
Telephone accounts directly related to the running of your clients’ investment properties are tax deductible.
Tax-related expenses
The cost of obtaining tax advice from a registered tax agent is tax deductible. Tax preparation fees and accounting charges are also tax deductible.
Travel and car expenses
Investment-related travel and car expenses include airfares, car hire, taxis and accommodation. These expenses are tax deductible if your clients incur these costs while collecting the rent, inspecting the property, or travelling for some other reason related to their investment property. To claim car expenses, they will need to record the size of their vehicle’s engine as well as the number of kilometres they travelled while maintaining their investment property during the year.
Of course, clients should speak with an accountant if they are unsure about any of the above.
Warren Dworcan, managing director, Rate Detective Finance
Warren Dworcan is the managing director of Rate Detective Finance and has been dedicated to growing the business into becoming one of the leading independent brokerages in Australia.
Successfully assisting thousands of Australians with loan enquiries in excess of more than $1 billion, Warren alongside his highly qualified and dedicated staff is equipped to deal with all aspects and complexities associated with the mortgage market.
Recognised as one of the top brokers in Australia, Warren was awarded the coveted Australian Broker of the Year award in both 2012 and 2013 by The Adviser at the Australian Broking Awards.
