If you have rental property that is not used privately at all you can deduct expenses from the rental income you include in your tax return. Not all rental expenses can be deducted.
Expenses you can deduct
The expenses you can deduct from your rental income are:
- the cost of insuring your rental property
- the rates for the property
- payments to agents who collect rent, maintain your rental, or find tenants for you
- fees paid to an accountant for managing accounts, preparing tax returns and advice
- repair and maintenance costs
- fees for arranging a mortgage to finance the rental property
- fees for drawing up a tenancy agreement
- the cost of getting a valuation required to get a mortgage, but not insurance valuations
- the costs of taking legal action to recover unpaid rent
- the costs for evicting a tenant
- mortgage repayment insurance
- depreciation on capital expenses
- travel expenses for travelling to inspect your property or to do repairs
- legal fees involved in buying a rental property, as long as the expense is $10,000 or less.
You can also deduct interest on money you have borrowed to buy your rental property. You cannot deduct this if you have used some of the money:
- for something else
- to top up the mortgage for another purpose.
Please note that the Government intends to remove the ability to deduct interest from 1 October 2021 for loans used to acquire residential property (unless it's newly built property) on or after 27 March 2021. Interest deductions will be allowed for property acquired before 27 March 2021, but will be phased-out over 4 income years.
Expenses you cannot deduct
Expenses you cannot deduct from your rental income are:
- capital expenses
- the purchase price of a rental property
- the principal portion of mortgage repayments
- costs of making any additions or improvements to the property
- cost repairing or replacing damaged property, if the work increases property value
- real estate agent fees charged as part of buying or selling the property
- depreciation on the rental's land or buildings
- your time when you do repairs and maintenance work
- legal fees involved with selling the rental property (unless you’re in the business of providing residential rental accommodation).
The difference between repairs and improvements can be complex. If you are unsure about whether work done on your property is repairs or improvements, talk to a tax agent.
GST and residential rent
GST is not charged on residential rent. This means you do not include residential rental income in your GST return even if you’re registered for GST.
When you deduct rental expenses in your tax return, use the GST inclusive amount.