Tax Deductions for Property Owners

With the end of the financial year almost upon us once again, talk is turning to tax deductions and filing a tax return.

There are a number of tax incentives available to property owners.

Knowing how to leverage these can help you maximise cash flow, reduce the amount of tax you pay and make investing in property a more attractive proposition.

Negative Gearing

Many deductions available to property investors fall under the umbrella of ‘negative gearing’.

A property is negatively geared when your rental return does not cover interest repayments and other expenses related to property management, maintenance and repairs.

Australian law allows property investors to offset this loss against other taxable income, reducing the amount of tax paid and making investment in property a more attractive proposition.

You can claim items such as property management fees, council rates and other miscellaneous expenses.

Find out more about negative gearing

Tax Depreciation

Owners of investment properties (both established and new builds) can also claim deductions against the depreciation (loss) in value of their property.

What parts of the property depreciate?

The building itself depreciates through wear and tear, as well as fixtures and fittings such as blinds, carpets and heating and cooling units.

If you live in a block of units or a high-rise apartment building, you can claim a deduction on your share of the common property and assets such as pools, gyms, car parks and lifts, as well as security and fire safety assets.

Have you bought an investment property and now plan to renovate it?

Before you begin, get a tax depreciation schedule drawn up – this will allow you to claim the full tax deduction on some items in the first year.  Once your renovation is complete, it’s a good idea to get another depreciation schedule done to claim depreciation on the new items you have purchased.

Only some parts of a renovation can be claimed as depreciation.

Find out more about investment property depreciation

You should always engage a fully-qualified quantity surveyor to prepare a tax depreciation schedule – this is not something your accountant can do for you.

I’m an owner occupier. Can I claim any deductions?

Covid-19 and Working From Home

For the current financial year – 2021-2022 – the ATO is allowing Australians who had to work from home during Covid lockdowns to claim a deduction for some of their expenses.

These arrangements are the same as for the 2020-2021 financial year. You can claim 80 cents for every hour you worked from home – this amount covers all extra costs, such as furniture and equipment you needed to buy, increases in energy bills, and cleaning.

You must keep a record of how many hours you worked from home, work out the amount (number of hours at 80 cents per hour), and write this amount in the ‘other work-related expenses’ section of your tax return. This deduction should be labelled ‘ Covid-19 hourly tax rate’ on your tax return.

Home Businesses and Live-in Landlords

Do you run a business from your home,  work from home a large part of the time, or rent out part of your home as a ‘live-in landlord’?

If so, there are a number of deductions you can claim.

If your home is your primary place of business, you can claim some of the costs of running a home office as tax deductions. These can include mortgage interest, the cost of cleaning and repairs, and home and contents insurance.

Owner occupiers who work from home some of the time can also claim some of the expenses of working from home, even if they don’t technically run a home office.

Allowable deductions include energy bills for heating, cooling and power, cleaning of the work area, phone and internet charges, computer consumables and depreciation costs for office equipment over $500.

Find out more about deductions for home-based businesses

Do you rent out a room in your home to a lodger?

Using the apportion method to separate your deductions between private and personal use, you can claim such things as internet and phone costs, water, power and council rates, upkeep and repairs, depreciation on the cost of furnishings and equipment, interest-only mortgage repayments, and body corporate fees (if applicable).

Find out more about deductions for live-in landlords

Make It Easy on Yourself

Tax time can be confusing and overwhelming, especially if your affairs are complex.

Keep receipts and proper documentation to support your claims. Fraudulent or incorrect claims can attract heavy penalties from the ATO and are much easier to spot with the advent of electronic and automated records.