According to the ATO there are around 1.9 million property investors in Australia and 2.7 million rental investment properties1. Surprisingly, many landlords fail to claim all allowable tax deductions simply because they are unaware of all the expenses they can claim as a tax deduction.

GEARING

There are two types of investment property strategies – positively geared or negatively geared.

This is where rental income is higher than interest payments and tax deductible outgoings. Tax is likely to be paid on the net income.
This is where rental income is less than interest payments and tax deductible outgoings. The loss can be offset against other income earnings, reducing assessable income and therefore your tax payable.

The strategy most suited to you will be dependent on your individual circumstances and your long term investment goals and objectives.

More recently, proposed tax changes to negative gearing has been a political hot potato. Let’s face it – nobody likes the goal posts shifted half way through the match! Whatever the outcome,property investment is likely to continue being a popular path to wealth creation for Australians – even if the scales tip in favour of positively geared property investment.

As you can see, even with a significantly lower average mortgage in 1990 home owners weren’t much better off while interest rates were high.

ARE YOU CLAIMING ALL THE POSSIBLE TAX DEDUCTIONS?

The strategy most suited to you will be dependent on your individual circumstances and your long term investment goals and objectives.

More recently, proposed tax changes to negative gearing has been a political hot potato. Let’s face it – nobody likes the goal posts shifted half way through the match! Whatever the outcome,property investment is likely to continue being a popular path to wealth creation for Australians – even if the scales tip in favour of positively geared property investment.

  • stamp duty charged on the mortgage

  • loan establishment fees
  • title search fees charged by your lender
  • costs for preparing and filing mortgage documents
  • mortgage broker fees
  • fees for a valuation required for loan approval
  • lender’s mortgage insurance – this is insurance taken out by the lender and billed to you
  • advertising for tenants
  • bank charges
  • body corporate fees
  • council rates
  • gardening and lawn mowing
  • insurance
  • land tax
  • legal expenses for preparing a lease or evicting a non-paying tenant
  • pest control
  • property agent fees or commissions
  • repairs and maintenance
  • water charges (if not paid by the tenant)
The plant and appliances in your property reduce in value over time as a result of normal wear and tear. The ATO allows you to claim deductions for this reduction in value each year.

In order to substantiate these deductions you should consider getting a professional quantity surveyor’s report for applicable capital works and depreciation deductions during the life of yourproperty.

You may be able to claim a deduction (usually at the rate of 2.5% per year in the 40 years following construction) for the construction cost of:

  • stamp duty charged on the mortgage
  • buildings
  • extensions such as a garage or patio
  • alterations such as adding an internal wall
  • structural improvements such as a gazeboo, carport, sealed driveway, retaining wall or fence.
Interest is usually the largest tax deduction, particularly in a negative gearing arrangement. You can claim the interest charged on the loan used to:
  • stamp duty charged on the mortgage
  • purchase a rental property of land to build a rental property
  • purchase a depreciating asset for the rental property (eg an air conditioner)
  • make repairs to the rental property
  • finance renovations on the rental property

WHAT IS THE ‘HOME OWNERSHIP’ MESSAGE FROM ALL OF THIS?

Well, the road hasn’t ever been easy. In fact…

If it was easy – everyone would do it! Building wealth and financial security through property investment has ALWAYS required a level of sacrifice and self-discipline. Current home ownership statistics show 31% of Australians rent, 36% have a mortgage and 33% own their home outright. 4 Those who benefited over time are those who put a strategy in place and had the discipline to stick with it.

Is there hope for first home buyers? Recent research5 shows Gen Y is the new generation of FHBs and they are starting to actively enter the market. We are also seeing the rise of the ‘rent investor’ – young renters under 30 purchasing investment properties in affordable areas while renting where they WANT to live.

Most importantly… make sure you keep all receipts as no receipt = no deduction.