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If you own a rental property you can claim a variety of expenses at tax return time. These must relate to the costs of generating rental income, and must not include costs for private use.
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Insurance and rates
You can claim the cost of insuring your rental property and the rates for the property.
You can claim the interest charged on money you've borrowed to buy your rental property. However, if you:
- borrowed part of the money for another purpose, or
- topped up the mortgage for another purpose, for example to consolidate debt or to buy the house you live in
you can only claim the interest that relates directly to the rental.
Fees and commission
You can claim fees or commission paid to agents who collect the rent, maintain your rental, or find tenants for you.
Fees paid to an accountant
You can claim the fees for:
- your accounts to be managed
- tax returns to be prepared, and
but not the costs involved in setting up your rental property.
Repair and maintenance costs
You can claim the costs for any repairs to the property or general maintenance. However, if you're doing the work yourself you can only claim for materials - not your time.
If the work is more of an improvement than a repair then you can't claim the cost as an expense.
The distinction between repairs and improvements can be tricky, so if you're unsure whether work done on your property is repairs or maintenance we suggest you talk to a tax agent.
Motor vehicle expenses
You can claim for motor vehicle expenses, such as running costs for travelling to inspect your property or to do repairs. There are two options for claiming motor vehicle expenses - you can either use our kilometre rates or claim a percentage of the total running costs and depreciation.
You can't claim deductions for capital expenses, private expenses, or expenses that do not relate to your rental.
Capital expenses are the costs of buying a capital asset or increasing its value, for example the cost of buying the property and making improvements. Private expenses are things you buy or pay for that are for your own benefit, rather than to generate rental income.
Expenses you can't deduct from your rental income in your tax return:
- the purchase price of a rental property
- the capital portion of mortgage repayments
- interest on money you borrow for any purpose other than financing a rental property
- the costs of making any additions or improvements to the property
- the costs of repairing or replacing any damaged part of the property, if the work increases the property's value
- real estate agent fees charged as part of buying or selling the property
If you live in the property
You can't claim for expenses that relate to your personal living costs. For example, if you move into your rental property after not being able to find tenants.
If you're living in a family home that was bought or transferred to a company, partnership, or trust which you own or control, you need to be very careful about claiming expenses. If in effect you're renting the property to yourself, we could view these claims as tax avoidance and you could face penalties, even prosecution.
You can't claim legal fees charged as part of buying or selling the property. The only exception is if:
- you are in the business of renting properties, and
- your total legal expenses for the income year are $10,000 or less.
To find out if you are in the business of renting properties, please contact your tax agent.
The general rule is that you can only claim expenses as they relate to your rental activity. You can’t claim private living costs or capital expenses. Private living costs include your day-to-day costs, such as food, power or gas. Capital expenses include buying furniture for the room you rent out or the cost of improving your property. You can claim depreciation on capital expenses.
Expenses you may be able to claim include electricity, gas, telephone and internet, insurance, or rates. If you are living in the house, these expenses will need to be apportioned.
Renting out your house - apportionment
If you rent out your house on an occasional basis, you can claim the percentage of expenses for the time your house is rented. This may apply where you rent out the house or property while you are away for a short period of time.
The percentage of expenses you claim must match the amount of time in the tax year the house was rented out.
Renting out a room - apportionment
If you are renting out part of your home, you can only claim expenses that relate to that part of the property.
You can only claim expenses for the time the room was rented out and occupied.
Expenses can be worked out as a percentage of the total area of your home that the rented room occupies.
If you are unsure how this situation applies to you, we recommend you seek professional advice.
There are different rules for claiming expenses if you have a mixed-use holiday home - this is where you use the holiday home yourself, you rent it out as well, and it's unoccupied for 62 days or more.
We recommend you get professional advice from an expert in this area.
GST is not charged on residential rent. This means you don't show rental income in your GST return even if you are registered for GST for another taxable activity.
When you claim your rental property expenses in your income tax return (IR3), you use the cost of the expense including the GST.
Depreciation is an allowance you can claim to cover the costs of wear and tear and general ageing of furniture and fittings you've bought for your rental. You can combine assets worth less than $5,000 rather than depreciating them separately.
You cannot claim depreciation on the rental's land or buildings. However, this wasn't always the case.
Before April 2011, you could claim depreciation on the buildings. If you did this, and you sell the rental for more than its depreciated value, the depreciation you claimed is taxable income. This is a complex area, so we recommend you talk to a tax agent.
If you have boarders or home-stay students
You can't claim expenses associated with having boarders or home-stay students, unless you have five boarders or more.
If the property isn't rented for the full year
If your rental isn't occupied by tenants, isn't available to be rented out, or is only available for rent for part of the year, you can't claim the full year's ongoing costs (such as rates, insurance and interest).