Be warned that this year the Tax Office has identified that it is on the lookout for inappropriate or excessive claims for rental properties.

The four key problem areas identified are;

  1. Excessive deductions being claimed for holiday homes. Deductions are only available for the periods the property is rented out or available for rent during a financial year. If rented to family or friends at below market rates then the expenses must limited to income received.
  2. Husbands and wives inappropriately splitting rental income and deductions for jointly owned properties. When a rental property is owned jointly then income and expenses are to be included in each taxpayers return, including more expenses in the higher income earner’s tax return is not allowable.
  3. Claims for repairs and maintenance shortly after a property was purchased. If significant repairs and maintenance are carried out shortly after a property is purchased these may be viewed as ‘initial repairs’ and classified as capital expenses.
  4. Interest deduction being claimed for the private proportion of loans. Interest expenses incurred with respect to a rental property are only deductible to the extent that the property is being used to produce rental income.  Any interest expense referrable to any private use of property is non-deductible. Similarly if funds are drawn from the loan for private purposes, ie.  buy a car, then the interest on that re-drawn amount is non-deductible.

When compiling your records for tax keep in mind the below allowable deductions;

  • Advertising for tenants
  • Body corporate fees
  • Cleaning
  • Commission or management fees paid to agent
  • Gardening
  • Insurance
  • Interest on loans
  • Land tax
  • Lease/letting fees
  • Legal costs re tribunal hearings and ejecting on rent default
  • Pest control
  • Quantity surveyor depreciation report
  • Rates (general, garbage and water)
  • Rent insurance
  • Repairs (but not initial repairs)
  • Travel for inspection and maintenance