Rental property expenses

What you can claim

You can claim expenses relating to your rental property but only for the period your property was rented or available for rent; for example, advertised for rent.

Expenses could include:

• advertising for tenants
• bank charges
• body corporate fees and charges
• borrowing expenses (such as bank fees and charges)
• capital works
• cleaning
• council rates
• decline in value of depreciating assets
• gardening and lawn mowing
• insurance
• interest expenses
• land tax
• legal expenses
• pest control
• phone
• property agent fees and commissions
• repairs and maintenance
• stationery and postage
• travel undertaken to inspect or maintain the property or to collect the rent
• water charges.

Repairs

Repairs made to the property during the period it is leased are deductible but generally not repairs carried out within the initial 12 months of owning the property, this is classified as a capital expense (this can be used to reduce a capital gain on disposal).

Improvements

An improvement is deemed to a capital expense if it has improved the existing condition of the property, and has not merely replaced something that is broken. This expenditure needs to be treated as a fixed asset, and a depreciation claimed over their effective life.

For example, replacing a gutter or tiles on your roof because they are worn is a repair, adding solar panels or a pool to your property is an improvement.

Building cost write off

If the building is under 25 years old you will be entitled to claim a deduction of 2.5% per year of the original cost of construction of the building for up to 40 years from the original date of construction. If you do not know the building cost you can contract a quantity surveyor to determine the building costs and prepare the depreciation schedules for the property and determine what can be claimed.

However, a deduction cannot be claimed for the costs of acquiring or disposing of the rental property, except in the ACT where properties are leasehold and stamp duty and legal expenses are allowable. For example, the purchase cost of the property, conveyancing costs, advertising expenses, building inspection reports, travel to view property prior to purchase and stamp duty on the transfer of the property. However these costs may form part of the cost base of the property for capital gains tax purposes.

Apportionment

If part of your property is used to earn rent, you can claim expenses relating to only that part of the property. You will need to work out a reasonable basis to apportion the claim. As a general guide, apportionment should be made on a floor-area basis, that is, by reference to the floor area of that part of the residence solely occupied by the tenant, together with a reasonable figure for tenant access to the general living areas, including garage and outdoor areas if applicable.

Example

John Smith’s private residence includes a second storey which he rented out. The second storey represents 30% of the total floor area of the house. Gerard also shared the laundry with his tenant. The laundry takes up 10% of the total floor area of the house. If half is a reasonable figure for use of the laundry by the tenant, Gerard can claim 35% of the expenses for the property – that is:

30% + (1/2 x 10%) = 35%.

ATO Tax Ruling 

Taxation Ruling IT 2167External Link – Income tax: rental properties – non-economic rental, holiday home, share of residence, etc. cases, family trust cases will give you more details about apportionment.