As the financial year draws to a close, there's no better time than now to familiarise yourself with the Australian Taxation Office's deductions for rental property investments. If you're a rental provider, you may be eligible to claim various tax deductions on your investment property in the upcoming financial year. This includes the opportunity to make a claim for the interest incurred on the loan if you've taken one out for your investment property.

Claiming Interest Expenses:

If you wish to divide your loan between business and recreational use, it's essential to be aware of the limitations involved. Cash spent on non-essential items such as vacations or retail purchases will not be eligible for the interest claim. If you choose to use the loan for private purposes, you must apportion the interest for the duration of the loan. It's important to consider this when utilizing your investment loan for personal expenses. If the ATO notices any discrepancies, it may delay the processing of your refund, and you'll be asked to correct your return.

Deductible and Non-Deductible Expenses:

When it comes to deductible expenses at the end of the financial year, there are several points to consider as a rental provider.

Firstly, you cannot claim an immediate deduction for repairs done on existing damages upon purchasing the property. For example, replacing a broken windowpane or repairing damaged floorboards.

Secondly, you may be able to claim a deduction over several years as a capital works deduction. These costs are also considered when calculating your capital gain or capital loss when you sell the property. However, if you make improvements to your property, such as replacing an entire structure when it is only partially damaged, you may claim this expense.

Borrowing Expenses:

Regarding borrowing expenses, any amount over $100 will be deducted over a five-year period. However, if the expense is $100 or less, you can claim the entire amount in the same income year it was incurred. Borrowing expenses include loan establishment fees, title search fees, and costs related to preparing and filing mortgage documents.

It's important to note that borrowing expenses do not include stamp duty charged by your state or territory government on the property title. Remember to apportion your borrowing expenses in the first year based on the number of days you own the property.

Strategies for Maximising Deductions:

Your Property Manager can help streamline the process at tax time by providing you with an end-of-financial-year statement. As a rental provider, it's also advisable to address maintenance issues promptly to avoid missing out if a tradesperson is booked in advance.

This end of the financial year, ensure you maximise your tax returns as a rental provider. If you're unsure about what you can or cannot claim, speak to your tax professional as soon as possible.

If you're looking for a professional property management team to handle your most important asset, contact Nelson Alexander today.

Please note, this blog post is intended to provide a general understanding of the subject matter and to help you assess whether you need more detailed information. For more information on Tax Deductions, visit the ATO website.