If you are earning income from an investment property, you can claim deductions for your expenses. These expenses fit into two categories:
- What you can claim now, and
- What is claimed over time.
You can claim:
- interest on loans,
- council rates,
- repairs and maintenance, and
- depreciating assets costing $300 or less, in the year that you paid for them.
Other items that are depreciated over time include:
- structural improvements,
- fixtures, such as ovens, hot water systems, etc
- adding fences and retaining walls,
Rental properties are a major target for the ATO this year, so it’s important to remember:
- Rental income – Declare all rental income (including short term stays, renting out a room in your house, insurance payouts, rental bonds retained).
- Rental expenses – Rental expenses can only be claimed for the portion of time that the property was rented or genuinely available for rent. If, for example, you did not make the property available for rent while you were renovating it, you cannot claim the cost of the expenses over this period. Sometime the ATO will argue that a property is not genuinely available for rent even if it is advertised as being available. This can be relevant for properties in locations where there is very little demand during certain times of the year.
- Interest and redraws – If you have refinanced or redrawn on your rental property loan for personal expenses like holidays or a car, this will impact on the interest you can claim.
- Sale of assets – If you earned income from a residential property (renting out a room or the whole house), then it’s likely you will pay capital gains tax on any gain you make on the sale of the property. However, if the property was your home for a period of time, you might be able to claim a full or partial exemption from CGT. In some cases it will be necessary to obtain a valuation of the property at the time it is first used to produce income if it has previously only been used as your main residence.
