If you own a rental property all rental income obtained throughout the financial year needs to be included in your Income Tax Return. Additionally, the associated expenses may be included and will be deducted from the rental income. However, you may only claim expenses that were incurred within the period that your property was rented or available for rent. Therefore, if your property was only available to rent for a portion of the financial year, you are required to apportion the expenses related to the time it was rented.
Expenses of a rental property
What you can claim
Expenses that can be immediately claimed within the financial year include:
- Advertising costs
- Bank charges
- Borrowing expenses such as mortgage and interest expenses
- Council rates
- Cleaning
- Insurance
- Interest expenses such as interest charged on a loan used to purchase the rental property, purchase of an asset for the rental property etc.
- Land tax
- Legal expenses such as costs incurred relating to court action for loss of rental income. However, you cannot claim the cost of solicitors’ fees for the purchase of the property and preparation of loan documents.
- Pest control
- Phone costs
- Real estate agent fees and commissions
- Repairs and maintenance
- Stationery and postage
- Travel in relation to the inspection or maintenance undertaken to the property or to collect the rent
- Water charges
Expenses that can be claimed over a number of years include:
- Mortgage set-up costs – these can be claimed over five years
- Depreciation of assets such as appliances
- Building costs - these are generally claimed at 2.5% per year
What you can’t claim
- Expenses relating to any personal use of the rental property
- Any bills that were paid by the tenant
- Costs relating to the buying and selling of the rental property and any initial repairs made. When the property is sold, these factors will be taken into consideration to determine the capital gain.
Additionally, if only a portion of your property is available or used to rent, you can only claim expenses in relation to that part of the property.
Record keeping
You will also be required to retain records such as receipts and bank statements, in order to make a claim. Records that you must keep are:
- Any rental income you receive and expenses incurred – these records must be kept for five years from the date your tax return is lodged.
- Documents relating to the ownership of the property and all the costs associated with the purchase and disposal of the property.