Make Most Tax Refund From Your Investment Property

Tax Tips
October 08, 2022•4 min read

Make Most Tax Refund From Your Investment Property

If you are on high income tax bracket then one of the best way to reduce the income tax liability is investment in real estate. There are many deductions that you can claim on a rental property making your investment negatively geared. This rental loss can  be applied against your other income from salary or business hence reducing your tax.

Advertisement Cost

The cost of advertising in real estate agencies and posting advertisements in newspapers is a claimable expense as this cost is used to attract tenants which are associated with generating rental income. 

 

Council Rates

All costs related to council expense are deductible.

 

Borrowing Costs

This cost is related to the cost of borrowing money for the purchase of the property. Not the interest that is generated. These costs are deductible over the period of the loan or over a 5 year period if the total borrowing expense is more than $100. 

You can claim the following as borrowing expenses:

  • Loan establishment fees

  • Lender’s mortgage insurance (insurance taken out by the lender and billed to you)

  • Title search fees charged by your lender

  • Costs (including solicitors’ fees) for preparing and filing mortgage documents

  • Mortgage broker fees

  • Fees for a valuation required for loan approval

  • Stamp duty charged on the mortgage (Stamp duty charged by the state/territory government the property)

 

Gardening Costs, Repair and Maintenance Costs

Gardening cost of the premises are deductible.

The cost of repairing is deductible in once but this is to be differentiated from improvements and replacement because in these cases, they will be treated as new assets and they can be claimed under depreciation for normally over a number of years. 

‘repairs’ mean work to make good or remedy defects in, damage to or deterioration of the property. For example:

  • Replacing part of the guttering or windows damaged in a storm

  • Replacing part of a fence damaged by a falling tree branch

  • Repairing electrical appliances or machinery.

When we say ‘maintenance’, we mean work to prevent deterioration or fix existing deterioration. For example:

  • Painting a rental property

  • Oiling, brushing or cleaning something that is otherwise in good working condition

  • Maintaining plumbing.

 

Land Tax

Land tax is the tax imposed based on the value of the land which is also tax-deductible. 

 

Body Corporate Fees or Starta Fees

Body Corporate Fees or Strata Fees are claimable deductions. 

 

Pest Control

Pest Control expenses is tax deductible if you have paid for it. 

 

Water Charges

Water charges are deductible but if you are reimbursed by the tenant than than reimbursment is treated as income.

 

Depreciation Schedule

Property built after 1987 are subject to a special building depreciation under capital works deduction under Division 43 ITAA 1997. For those properties, it may be worth hiring a quantity surveyor for a depreciation schedule.  The cost of the depreciation schedule (also tax deductible) , Please talk to us we can organize one for you.

 

Legal Expenses

You can claim the cost of the following as income tax deductions:

  • Evicting a non-paying tenant

  • Expenses incurred in taking court action for loss of rental income

  • Defending a damages claim in respect of injuries suffered by a third party on your rental property.

 

Insurance

Landlord insurance to cover the property from being destroyed or tenants doing damages are a claimable expense.

 

Stationary and postage

The cost associated with pens, paper, and other office works related stationery and postages used for rental property to interact with tenants/ agent are also deductible.

 

Interest Expenses / Prepaid interest Expenses

Interest Expenses on the loan to purchase the investment property is tax deductible.

You can also claim the interest you have pre-paid up to 12 months in advance. Therefore, if you are expecting to have a much lower income next year for reasons such as maternity leave, then you should pay interest in advance to reduce your higher income this year. Because there will be less tax withheld during the lower income period, where you do not need a high expense to claim back all your tax. 

 

Penalties on Early Repayments or Refinancing

With low interest rates, you may be considering refinancing. 

you may have to pay a penalty for early termination of a fixed interest loan or interest and principal loan. This generally represents the loss the bank makes where they have borrowed and or lent at a high interest rate and now they can only re-lend at the lower rate.

The additional fee, call it a penalty or additional interest on the termination is tax deductible in the year it is incurred. To maximise the tax deduction do it before 30 June.

 

Real Estate Agent fees

Agent charges for managing the property, which includes commission and GST, also include Letting Fees, inspection fees etc are claimable expenses

Back to Blog