Are you correctly reporting to the Australian Taxation Office (‘ATO’) the net income derived or net loss incurred on your Australian property? Living outside of Australia does not mean your Australian tax filing obligations are over. In addition to this, rental property managers do not have an obligation to withhold or report your rental property data to the ATO on your behalf.
In completing your tax filing obligations, it’s important to report the rental income amounts correctly however it is also beneficial to ensure you are including all relevant rental expenses. Where the amount of rental expenses exceeds the amount of rental income, the loss can be utilised to offset any other Australian source income, either in the same income year or in any future income year, i.e., TAX SAVINGS.
This could mean that an accumulation of losses over the years whilst living outside of Australia can reduce the amount of Australian tax payable on the future sale of the property. Everyone wants more cash in their pockets so, what are the rental expenses that I can include?
The common expenses for which you can claim in the year they are paid include:
- advertising for tenants
- council rates
- insurance – building, contents, public liability
- interest on loans associated with the purchase or renovation of the property
- property agent’s fees and commission
- pest control
- land tax (ensure you have registered your property as a rental property with the local revenue authority)
- servicing costs such as servicing a water heater or air conditioner; and
- repairs and maintenance
Further expenses you incur can be claimed over time, including:
- borrowing expenses associated with the purchase or renovation of the property
- the cost of an asset such as a dishwasher (referred to as depreciation of plant and equipment and cover all assets which are removable from a building, not fixed or attached in such a way that it becomes an element that is part of the building)
- the cost of capital improvements to the property (referred to as capital works and refers to construction structural improvements to the building such as concrete slab, timber-stud framing, windows, plasterboard, doors, roofing but excludes soft landscape such as plants)
To ensure the maximum amount of depreciation and capital works deductions are included, a depreciation and capital allowance schedule should be obtained from a quantity surveyor or depreciation provider.
For completeness we note that there are certain expenses which are not eligible as deductions, including:
- acquisition and disposal costs such as legal fees and stamp duty
- expenses not actually incurred by you such as electricity charges borne by your tenant
- expenses that relate to the property but not incurred at a time when the property was rented or available for rent such as expenses connected to your own use of the property as a holiday home
Ilana Kramarov is the Director Tax for Select Investors Australia, if you would like more information on allowable rental deductions for an Australian residential property, please contact Ilana via email ilana@selectinvestorsaustralia.sg.
This information has been prepared in good faith, is in the nature of general comment only, and neither purports, nor is intended, to be advice on any particular matter. You should not act or rely upon any matter or information contained in or implied without taking appropriate professional advice which relates specifically to your particular circumstances. Select Investors (Australia) Pty Ltd expressly disclaim all and any liability to any person (whether a reader or not) who acts or fails to act as a consequence of reliance upon the whole or any part of this information.
