What expenses can investors claim on their rental property?

Congratulations! You just became a property investor thanks to a snazzy investment home loan. Besides enjoying future rental income and the glorious title of “Landlord”, there’s tax breaks to be had, too. So let’s maximise your earnings potential. Which rental expenses are tax deductible?

NOTE: Always consult a tax professional on what you can claim for tax purposes.

According to the Australian Taxation Office (ATO), there are three categories for rental expenses on your tax return. These are:

• Deductions you can claim now, such as interest you pay on your loan, council rates, repairs and maintenance, and depreciating assets (like an air conditioner) up to $300 in value.
  
• Deductions you can claim over several years, such as borrowing expenses, capital works, and the loss of value from depreciating assets. 
  
• Expenses you can’t claim as a deduction, such as personal expenses, some capital fees like stamp duty, and the purchase of second-hand or used depreciating assets after 9 May 2017.

As a general rule of thumb, you should only claim expenses related to the income-producing use of the property, i.e. the cost of renting it out (as opposed to personal use, which is not tax deductible).

So long as your rental property is occupied (or genuinely available for rent*), you can claim deductions for most of your rental expenses during the tax year.

Eligible incoming-earning, tax-deductible expenses for landlords include:

• Tenant advertising.
  
• Agent fees, charges, or commissions.
  
• Council rates.
  
• Water charges.
  
• Land tax.
  
• Cleaning.
  
• Gardening and lawn mowing.
  
• Pest control.
  
• Home insurance and landlord insurance.
  
• Interest expenses on your mortgage (i.e. the interest you pay, and not the principal amount).
  
• Prepaid expenses, such as an annual home insurance premium paid on 1 January. (Expenses must be under $1,000, or $1,000+ if the service period is a year or less).
  
• Repairs and maintenance**.
  
• Legal expenses.
  

Charges on the original amount of money you borrowed from your lender are known as interest expenses. So if you take out an investment home loan, you can deduct the interest charged for your mortgage repayments.

If your property is negatively geared, you might be able to claim the full amount of your rental expenses against any other income (including rent and wages) for the year.

*A property is genuinely available for rent if you can demonstrate that you’ve advertised the property openly with the broadest possible exposure and don’t have restrictive conditions in place dissuading tenants from renting your property. (So just telling your work mates doesn’t count!)

**Make sure contractors or suppliers you hire to work on the property have a valid ABN. Otherwise, you may need to withhold 47% of their payment income and send it to the ATO. If you do not withhold when you should have, you may not be able to claim the expenses on your taxes later.

No point in trying to cheat the system: the crafty ATO are on it. Not every rental expense is claimable in your taxes. This includes certain mortgage expenses and the decline in value of some assets (especially second-hand purchases).

You cannot claim the following borrowing costs for your rental property:

• The original principal amount you borrowed on your home loan.
  
• Loan balances for the property.
  
• Principal repayments against the loan balance (you can only claim the interest).
  
• Capital expenses** related to the purchase of the property, such as stamp duty or legal fees for solicitors/conveyancers.
  
• Life insurance premiums, where the loan will be paid out by the provider in the event you die, become disabled, or lose your job (this is considered a private expense). 
  
• Private borrowing expenses, such as using a portion of the loan to buy a car.
  

**Capital expenses are costs you incur when buying/selling a rental property. These could potentially be included in the “cost base” of the property, which could help reduce the amount of capital gains tax (CGT) you pay when you sell your property. However, you would only need to pay/claim this for your income taxes whenever you sell your property, not every year.

Ultimately, the best investment home loan will depend on your budget and needs. Keeping a finger on the market pulse will give you a key advantage in your property journey.

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