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Guidance

Tax tips for property investors

Tax tips for property investors

If you have income from an investment property, it's important to know how to best manage your tax claim.

With the deadline to do and return your tax return just around the corner, now's the time to take stock of your investment property and any tax considerations.

What are your obligations?

As a rental property owner you must be able to demonstrate that you’ve made every effort to rent your property out.

This includes:

  • Collecting and producing evidence that it’s been advertised for rent
  • Making sure the property is in good enough condition to attract renters
  • Setting a realistic rental price
  • Removing unreasonable restrictions that may deter renters

What income must you declare?

When you lodge your tax return, you need to tell the ATO how much rent and rental-related income you received.

This includes:

  • Rental bond returns – if, for example, your tenant defaulted on rent or caused damage to your property
  • Insurance payouts
  • Letting and booking fees
  • Associated payments, e.g. goods and services payments
  • Any government rebates involved in purchasing a depreciating asset, e.g. solar hot-water system
  • Any amount a tenant pays you to cover the cost of repairs for which you then claimed a deduction (assuming, for example, the tenant has caused the damage themselves)
  • Any capital allowance deductions you received despite terminating a limited recourse debt prematurely, without paying it in full

What expenses can you claim?

Property investors can claim deductions for several expenses while their property is rented or available for rent.

These include:

  • Management costs such as land tax, body corporate fees and charges
  • Maintenance costs – e.g. cleaning, gardening, pest control, repairs
  • Borrowing expenses – e.g. loan establishment fees
  • Depreciation and capital works spending – e.g. carpets, appliances

You may be able to claim some of these costs now, but others may be deducted over time. Mortgage set-up costs, for example, are usually claimed over five years.

What can’t you claim?

Make sure you don’t claim any deductions that aren’t in fact deductible. These include:

  • Expenses someone else has paid, e.g. electricity bills paid by your tenant
  • Property purchase costs, e.g. advertising costs, stamp duty
  • GST credits for anything you buy in order to lease the property, as GST doesn’t apply to residential rental properties. If, however, you claim the expense as a deduction, you claim the total amount you’ve paid, including any GST

Lodging your tax return

What you claim on your tax return depends on how you rented your property out, whether or not you’re the sole owner; and if the rental income covers the repayments on your loan.

  • If you own the rental property with someone else, you can only declare half the income and expenses the property generates
  • If you rent out your property for part of the year – as often happens with holiday rentals – you can only claim expenses incurred at the time the property was available for rent
  • If only part of your property was rented out, for example the lower floor, you apportion expenses on a floor-area basis, e.g. the space solely occupied by your tenant
  • If your property is negatively geared – i.e. the rental income is less than the loan interest and expenses – you may be able to claim the loss against your salary or wages

You can contact the ATO who can provide you with further information to help you submit accurate tax returns.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Commonwealth Bank is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.