RENTAL PROPERTY GUIDE
Acquiring your Rental Property
The date you enter into the contract is your date of purchase for capital gains tax purposes, not the settlement date. The costs of acquiring your rental property are the cost base for your property and will be used to calculate any future capital loss or gain when you sell your property. These costs include:
- Purchase Price
- Conveyancing Costs
- Stamp Duty
- Advertising or Legal Fees for Sale or Purchase
- Other costs directly related to purchase or sale of property
Pay as you go instalments and withholding
If your property is negatively geared and the rental expenses you claim in your income tax return would result in a tax refund, you can reduce your rate of PAYG withholding to better match your year-end tax liability. If you believe your circumstances warrant a reduction to your rate or amount of withholding, you can apply to the ATO for a variation.
If your rental property is an NRAS approved property and eligible for the NRAS incentive, you will be able to vary your pay as you go instalments or withholding to account for this tax offset in the second year the property is rented.
Rental and other rental-related income is the full amount of rent and associated receipts that you receive, or become entitled to, when you rent out your property regardless of whether it is paid to you or your agent.
This income will be claimed on your tax return and offset by any rental expenses. There are possibly other rental related income amounts that may also need to be claimed, including:
- Rental bond money you become entitled to retain (in the instance of renter defaults or property damages).
- Insurance payouts in some circumstances
- Letting and booking fees you receive
- Reimbursement or recoupment for deductible expenditure, such as repairs and maintenance reimbursed by the tenant.
Note: GST doesn't apply to rent from residential premises. If you lease residential accommodation, you are not liable for GST on the rent you charge.
Claimable Rental Expenses
Expenses that are immediately deducted
Generally you can claim an immediate deduction for expenses related to the management and maintenance of the property, including interest on loans. You can claim a deduction for these expenses only if you actually incur them and they are not paid by the tenant.
There are however some expenses that cannot be immediately deducted and must be claimed over a number of years. These include the decline in value of carpet, furniture and appliances, and certain construction expenditure.
Expenses for which you may be entitled to an immediate deduction in the income year you incur the expense include:
- advertising for tenants
- body corporate fees and charges
- council rates
- gardening and lawn mowing
- insurance (building, contents, public liability)
- interest expenses
- land tax
- pest control
- property agent's fees and commission
- repairs and maintenance
- travel undertaken to inspect the property or to collect the rent
- water charges
NOTE: GST doesn't apply to residential rental properties, so GST credits on purchases for your investment property or rental expenses are not claimable.
Expenses deductible over a number of income years
There are three types of expenses you may incur for your rental property that may be claimed over a number of income years:
- Borrowing Expenses >$100 associated with purchasing your property
- Includes loan establishment fees, title search fees and costs for preparing and filing mortgage documents
- Deducted over 5 years
- Depreciable Assets where cost is > $300
- Includes items such as carpet, furniture and appliances
- Deducted over the useful life of the asset
- Capital Works Deductions
- Includes certain construction expenditure and structural improvements to the property (not claimable until construction is complete.
- Deducted over 25 or 40 years, depending on type, usually at a prime cost method rate of 2.5%
- A Quantity Surveyor’s report should be obtained to quantify capital works, deductions and depreciation.
If your property is negatively geared, meaning you purchased your property with the assistance of borrowed funds and the net rental income, after deducting other expenses, is less than the interest on the borrowings, the overall tax result will be a net rental loss. You are able to claim the full amount of rental expenses against your other income, such as salary and wages. Where the other income is not sufficient to absorb the loss it is carried forward to the next tax year.
NOTE: If the property is rented to a related party, the rent income must be at a market rates in order for the rental loss to be deductible. Please seek advice from a registered tax agent.
This guide is intended for informational purposes only and should not be relied upon as advice unless subsequently confirmed by fax or letter signed by a partner of the firm.
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