Tax deductions: what you can & can’t claim

Your taxable income for the year in relation to the property you own is arrived at by taking your assessable income (typically the rent which you earn) and subtracting from that any deductible costs which you incur during the same period.

Deductible costs can take two forms.

‘General’ deductions are, broadly speaking, any costs you incur that have a relevant connection to the rental of the property and that are not capital costs or costs of a private or domestic nature.

Other costs are deductible because of specific clauses in the tax law which make them deductible.  These ‘specific’ deductions apply to items such as repair costs and also depreciation expenses which are deductible over the life of the asset.

There are also a number of costs you can’t deduct, including costs associated with:

  • Acquiring and disposing of the property, including conveyancing costs, advertising costs and stamp duty.  These costs would normally be of a capital nature and would be added to the cost base of the property.
  • Expenses you don’t actually incur as the owner of the property,  for example costs in relation to the property which the tenant pays.
  • Expenses not related to the rental of the property, for example interest on a loan which might originally have related to the property but where additional funds have been drawn down to fund private activities.

There are other expenses which, while not immediately deductible, can be claimed over a number of years.  These include borrowing expenses (for example, those costs linked to the financing of the property such as title search fees, loan establishment fees, stamp duty on the mortgage, etc), depreciation costs on assets used in the building (such as air conditioners, hot water systems, etc) and capital works deductions (such as costs spent on altering, improving or extending the structure of the building).

The information in this article is for general interest and is not intended as advice. For advice and planning, consult an experienced tax professional.