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Calculating Your Property Tax Deductions

Updated: Jan 7, 2021

It’s tax time. So, what can you claim for your property? Rental income, after deductions of allowable expenses, is subject to tax at the investor’s marginal income tax rate.

The following deductions can be made on investment properties as long as it is rented out and used to gain income:

  • Property management expenses (commissions and fees)

  • Interest on borrowings

  • Repairs and maintenance expenses (but not improvements or replacing an asset in its entirety)

  • Insurance, rates and land tax

  • Bank fees on accounts maintained to receive rental income

These costs are not deductible if the property is not rented to produce income. However, it’s important to keep track of these costs as they can be included as part of the ‘cost of the investment property’, which can result in a smaller capital gain if the property is sold.

If the deductible costs are greater than the rental income, then these costs should be allowable as deductions against your other sources of income. A deduction can’t be claimed for the purchase of a capital asset for over $300. So, items such as furniture, televisions, window curtains and light fittings aren’t deductible as an instant write off. However, these items can be depreciated to reduce taxable

income over the effective life of the asset.

The building write off, also known as a Division 43 Allowance, is based on the construction costs of the building/house rented out. There is an annual 2.5 per cent of the original construction cost deduction depending on the date of commencement of construction and the type of structure. It’s recommended that all owners of investment properties arrange appropriate depreciation schedules to maximise tax savings and improve cash flow.

Make sure you talk to your tax advisor and pull together all you relevant deductions to claim back this tax time.

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