There are many things you can and can’t claim as an investment property owner. It can all be very confusing, and this year the ATO has announced it will be scrutinising tax returns to review property-related claims by utilising data matching.

To help you avoid scrutiny from the tax department, we have put together some details about what you can and can’t claim on your investment property. This will give you an idea about the information you need to share when you prepare your tax return.

What you need to know about investment property tax in Australia

Repairs and maintenance

There are differences to what and how you can claim between repairs, maintenance and improvements. Use this helpful guide to determine which works fall into which category.

For most repairs and maintenance:

You can:

• Claim deductibles in full the same year the costs are incurred.

You can’t:

• Treat improvements or renovations as repairs and maintenance.

Construction, improvements and renovation costs

Speak to your tax accountant about how you can claim major works in your tax return.

You can:

• Claim building costs as capital work deductions, including:
  • Extensions
  • Alterations
  • Structural improvements.
• Break down improvement and repair costs, and claim them over several years.
• Claim building expenses at 2.5% per annum after competition of the build.
• Claim for depreciation over several years.

You can’t:

• Immediately claim the full cost for all improvement expenses.
• Claim right away on detached items that are valued at over $300 (a new hot water system would be an example of this)
• Continue to make the 2.5% per annum deductions 40 years after the construction was completed.

Interest on your loan

Make sure you keep a record of the interest you pay on your investment property loan as it should be tax deductible.

You can:

• Claim the interest incurred on the loan used to pay for the investment property.

You can’t:

• Claim the interest for any portion of the loan that was used for private purposes, like a holiday.

Body corporate fees and charges

This is an area where you can offset costs in your tax return.

You can:

• Claim in full the costs you incur from your body corporate administration fund.

You can’t:

• Immediately claim funds raised for a special purpose fund created specifically for paying for major capital improvements or capital repairs. You may be able to claim these costs when the construction is complete.

Property management and general expenses

Whether you manage your own property or pay someone to do it, this is another area where you can claim expenses as deductions.

You can claim on:

• Property management fees
• Costs involved with advertising your property to find tenants
• Expenses related to lawn mowing, pest control and gardening
• Council and water rates
• Insurance (landlord’s insurance, public liability, building insurance etc).

Expenses and income for co-owned properties

A lot of people have an investment property that is only leased for a few weeks or weekends per year. In relation to investment property tax, if this is you:

You can:

• Claim a deduction in proportionate to the time when the property is tenanted across the year.

You can’t:

• Claim for an uninhabited property, unless you can prove that you were actively working to find tenants during this period.

Get help from an expert to assist you with your investment property tax deductions

As you can see, there is a lot to understand about investment property tax and it’s easy to get things wrong, which is why the ATO is being vigilant and closely reviewing people’s claims.

If you take one thing away from this guide, it’s to keep all your receipts and have clear records of your investment property expenses. Bring them to the team at AFS & Associates, and we will be able to prepare an accurate tax return.

Need help to understand investment property tax? Reach out to AFS & Associates today.