Have you just bought a rental property? In this sponsored post GAIL FREEMAN lists some of the things she is regularly asked and says the answers may make it easier for you this tax year. 

BEFORE I get to the questions I’m often asked about owning rental properties, it’s worth noting that rental property deductions are a focus area for the Australian Taxation Office (ATO) this tax year.

Rental income – I often get asked: “My partner earns more than me so can I have all the rental income?” Rent has to be declared on the same basis as the property is owned, so if it is joint 50/50 this is the only option. 

Interest on loans – the most important thing to remember is it is the purpose of borrowing that determines the deductibility of interest. It is not the property used to secure the loan. I often see loans that total more than the purchase cost of the property plus stamp duty and legal fees. The excess is used for personal expenses. The component of the interest used for these personal expenses is not tax deductible so a loan apportionment is required and this reduced percentage of deductible interest continues in future years. If you try to pay this excess back, the ATO view is that your repayment is apportioned over the deductible and non-deductible portions of the loan. It is best not to use any part of the loan for private purposes. 

Repairs and maintenance – when you buy a new property that is not in good condition and you make repairs to bring it up to standard, these repairs are regarded as initial repairs and can be claimed either as construction expenditure over 40 years or they form part of the cost base to reduce the capital gain on disposal, depending on the nature of the repairs.

Property Improvements – these are also written off as construction costs over 40 years and are not to be claimed in full.

Insurance – Insurance premiums are claimable as a deduction. However, if your property floods or has some other disaster, don’t forget to put in an insurance claim. If the claim is accepted in part or in full the excess is allowed as a deduction and any costs you incur will be deductible. If the whole claim is denied and you have to pay the full amount then this can be claimed as a tax deduction.

Body corporate fees – fees paid to the administrative fund and the general purpose sinking fund are deductible. However, fees paid to a special purpose fund may not be immediately deductible. It is best to check on deductibility when you get the notice of the work from the strata manager.

Airbnb – if you let out part of your home or an investment property through the Airbnb scheme all of the income is accessible. However, deductions may have to be apportioned. If you used the property or part of the property for private purposes. 

Stamp duty and legal fees – these are only deductible in full on property purchased in the ACT because it is leasehold not freehold. In all other states and territories if the land is freehold these costs are part of the capital gains tax calculation on sale.

There are many other potential pitfalls in owning rental properties from a tax perspective. If you need advice, contact the expert team at Gail Freeman & Co Pty Ltd on 02 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au

Disclaimer
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser. Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.