If you have a rental property, the Tax Office has some advice about what exactly constitutes rental income and deductions you can claim in your income tax return for the period that your property is rented or available to rent.
There are three categories of rental expenses:
- expenses you can't claim - such costs of acquiring and disposing of the property, water and electricity costs that the tenant pays or expenses that aren't directly related to the rental of the property;
- expenses for which you can claim an immediate deduction in the year you incur the expense - such as advertising and leasing costs, cleaning and pest control, council rates, water rates, body corporate fees, property agent's management fees, property repairs, etc; and
- expenses which are deductible over a number of income years. These include borrowing expenses (such as loan establishment or title search fees), capital works deductions, and the decline in value of depreciating assets.
On the other side, the ATO states that rental income includes "the full amount of:
- rent money you receive, or become entitled to, when you rent out your property, whether it is paid to you or to an agent
- rental bond money retained because a tenant defaulted on the rent, or because of damage to the rental property requiring repairs or maintenance
- insurance payouts - for example, if you received an insurance payout to compensate you for lost rent
- a letting or booking fee you derived
- reimbursements of any deductible rental expenses you have incurred in relation to your rental activity - for example, if a tenant pays you an amount to cover the cost of repairing damage to some part of your rental property and you can claim a deduction for the repairs
- any assessable amounts relating to hire purchase and limited recourse debt arrangements involving your rental property, and
- associated payments, including all amounts you receive, or become entitled to, as part of the normal, and repetitive and recurrent activities through which you intend to generate profit from the use of your rental property."
Footnote:
For more detailed information, it is recommended that you seek the advice of a qualified taxation accountant who is familiar with your individual circumstances before lodging your return. Our Member Australasian Taxation Services specialises in Foreign Investors and Expatriates and can ensure you maintain a low or no tax environment on your Australian Rental Property Investment.
