ATO Tax Tip - Rental Expenses

Please note that BreakFree Wealth is not a tax accountant and is not licenced to provide tax advice. All information within this blog has been carefully researched, however it does not replace the advice of a licenced tax professional.

Rental Expenses

The Australian Tax Office (ATO) has made it abundantly clear that not every cost spent on an investment property can be claimed as a deduction.

To begin our discussion, the first hurdle to cross relates to whether the property is genuinely available for rent. This is a very important consideration, as many investors are of the understanding that if you take a property off the market for renovations, these costs are immediately deductible in the period that the costs were incurred. As stated by the ATO "you cannot claim expenses of a capital or private nature".

Types of Rental Expenses

Rental expenses can be categorised in three broad ways, namely expenses in which you:

  1. cannot claim deductions.
  2. can claim an immediate deduction in the income year you incur the expense.
  3. can claim deductions over several income years.

1. Expenses for which you cannot claim deductions

These include:

  • acquisition and disposal costs of the property, such as
    • purchase cost of the property.
    • fees on bank guarantees in lieu of deposits.
    • conveyancing costs.
    • advertising expenses.
    • fees of a buyer's agent you engage to find you a suitable rental property to purchase.
    • stamp duty on the transfer of property.

Example 1

  • expenses not incurred by you, such as water or electricity usage charges borne by your tenants.
  • expenses where your property was not genuinely available for rent.
  • expenses that do not relate to the rental of a property (i.e. expenses for your own use of a holiday home).
  • expenses that relate to holding vacant land.
  • the cost of certain second-hand depreciating assets.

2. Expenses for which you can claim an immediate deduction

These include:

  • advertising for tenants.
  • bank charges.
  • body corporate fees and charges.
  • cleaning.
  • local council rates.
  • electricity and gas.
  • gardening and lawn mowing.
  • in-house audio and video service charges.
  • insurance (building, contents, public liability, loss of rent).
  • interest on loans.
  • land tax.
  • lease document expenses.
  • legal expenses.
  • mortgage discharge expenses.
  • pest control.
  • property agent's fees and commissions.
  • quantity surveyor's fees.
  • costs incurred in relocating tenants into temporary accommodation if the property is unfit to occupy for a period of time.
  • repairs and maintenance.
  • secretarial and bookkeeping fees.
  • security patrol fees.
  • servicing costs (i.e. water heater).
  • stationery and postage.
  • telephone calls and rental.
  • tax-related expenses.
  • travel and car expenes to the extent that they are deductible.
  • water charges

Please note that you can only claim for the above expenses only if actually incurred them (not paid by the tenant).

3. Expenses deductible over several income years

These include:

  • borrowing expenses.
  • amounts for decline in value of depreciating assets.
  • capital works deductions.

As stated above, the above are merely summarised examples of the various categories of expenses and further detail and understanding is required. All tax-related issues should always be made on an informed individual basis, and preferably with the guidance of a licenced tax professional.

The ATO's publication Rental Properties 2022 is an excellent publication that every property investor should access and read. You can find it here.


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