The top 4 tax deductions every Mount Isa landlord should know
With tax time looming, it’s important for you to maximise your eligible tax deductions if you’re a Mount Isa landlord. While we’re not financial advisers, we can provide you with Australian Taxation Office (ATO) guidance on rental property tax deductions.
1. Borrowing costs
Interest on an investment property loan will most likely be the major tax-deductible borrowing expense for any Mt Isa landlord. Other borrowing expenses could include:
- loan application fees
- loan establishment fees
- lenders’ mortgage insurance
- mortgage broker fees
- ongoing loan fees.
2. Property management expenses
Property management expenses could include:
- the cost of advertising to find tenants
- council rates
- tax agent/accountant fees
- property manager fees
- body corporate fees (for units/apartments/townhouses).
Common rental property items that can be depreciated to create a tax-deductible expense for landlords include:
- air conditioners
- kitchen appliances
- laundry appliances
However, it’s important to use the ATO’s depreciation guidelines to calculate the correct tax deduction for each depreciating asset that you want to claim.
4. Repairs/maintenance costs
It’s important for you to differentiate between investment property expenses that are repairs and maintenance and those that are renovations/improvements. Both types of costs and maintenance costs can generate tax-deductible expenses on a rental property. However, the amount of the tax-deductible expenses that you can claim for each of these types of costs differs significantly. It’s therefore crucial for you to understand the difference between the two.
Incorrectly claiming renovations/improvements as repairs and maintenance costs is one of the most common mistakes that landlords make when completing their tax returns. The ATO conducts routine audits and reviews of these investment property tax deduction claims accordingly.
The difference between repairs/maintenance and renovations/improvements
Repairs and maintenance expenses on a rental property are fully tax-deductible in the financial year they occur. Renovation/improvement expenses on the other hand can only be claimed over 40 years (at 2.5% of the expense per year), provided your property remains available for tenants to rent.
Repairs on your investment property involve replacing a broken part either while the property is being rented to tenants (or after they leave). For example, replacing:
- guttering that has been damaged by a falling tree branch during a storm
- damaged light fittings
- broken tiles
- broken windows
- faulty electrical appliances
- worn-out tap fittings.
Maintenance expenses help to preserve your property’s condition over time. For example:
- internal or external painting
- oiling a deck
- pest spraying
- lawn mowing
It’s important to note that if you receive an insurance pay-out for the cost of any repairs, this amount must be included as income in your tax return. This will obviously reduce the amount of the tax-deductible expense.
If your Mount Isa rental property is a unit/apartment/townhouse, repairs and maintenance costs usually come out of a common body corporate fund that’s made up of the body corporate fees each owner pays. Your individual body corporate fees are fully tax-deductible.
Renovations/improvements have the following characteristics:
- they provide something new
- they generally improve your property’s value or its rental income capacity
- they generally change the character of your property
- they go beyond restoring the efficient functioning of your property.
Examples of renovations/improvement expenses include:
- an extension to your property (for example, adding a deck or a new room)
- a new bathroom
- a new kitchen
- adding a carport, garage or driveway.
If you need your property professionally managed, or you’re thinking about selling, buying, leasing or renting any Mt Isa property, then contact our team today for an obligation-free chat!
We’d be happy to provide you with advice and to answer any property questions you have.