As an investor, there are three categories of expenses which you have the luxury of deducting from your tax:
1. Acquisition and Maintenance Costs
You can offset expenses relating to your investment property against rental income; whether it was negatively geared or not. Some expenses which can be claimed are:
- Advertising costs to fnd tenants
- Bank fees and charges on your loan accounts
- Borrowing expenses
- Body corporate fees
- Cleaning costs
- Council rates
- Electricity and gas not paid by the tenant
- Insurance – building, landlord, etc.
- Interest on your investment loans
- Land tax
- Legal expenses
- Property manager fees and commissions
- Surveyors’ fees
- Repairs and maintenance
- Stationery and postage expenses
- Investment related telephone bills
- Tax-related expenses
- Travel and car expenses for rent collection or inspections
- Costs incurred for the inspection or maintenance of your property
- Water charges.
2. Depreciation Allowances
All landlords who own an investment property are eligible to claim depreciation on newly purchased items.
You can deduct depreciation on fxtures and fttings in the property, such as:
- Appliances
- Blinds
- Carpets
- Furniture
- Hot water system.
3. Negative Gearing
Negative gearing occurs when the annual cost of your investment is greater than the return which you are receiving. In simple terms, when the ongoing costs such as maintenance and loan repayments are greater than rental income, then the property is negatively geared. If you are negatively geared, the government allows the loss on your property to be deducted from your gross income, creating a reduction in your tax liability.
Top Tip: Do not be fooled. Although you will pay less tax, this is still a loss – only slightly smaller, which in time will hopefully be made up for due to the property’s capital growth. The ideal outcome is to have a positive cash fow or a low level of negative gearing.
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