This post is by Sheral Reddy, an chartered accountant and tax specialist at GECA Chartered Accountants. Call Sheral now for tax advice on your circumstances.

Deductible Expenses for Residential Investment Properties

Since our last blog on ‘Tax Changes for Residential Rental Properties’ in April we are getting a lot of clients wanting to know what can be claimed as an expense against the investment rental properties.

Some clients are thinking about doing major renovations since they are unable to deduct interest expenses going forward and are assuming that all the renovation costs will be deductible for tax purposes.

It is important to be aware of the capital versus revenue nature of renovation and repairs expenditure when expensing (or not) these types of costs.

The following are some of the expenses that are deductible for tax purposes against rental income from residential properties:

  • Accounting Fees
  • Body Corporate Fees
  • Depreciation on capital items or chattels such as heat pumps, appliances, etc
  • Insurance
  • Legal Fees
  • Mortgage repayment insurance
  • Property Manager fees
  • Rates
  • Repairs and maintenance costs
  • Travel Expenses when traveling to inspect or do repairs on the rental property
  • Valuation expenses if required for obtaining a mortgage
  • Water Rates
  • Interest on mortgages will only be deductible for properties purchased after 27 March 2021 till 1 October 2021 unless its newly built property. Properties purchased prior to 27 March 2021 will have the interest deductibility phased-out over 4 income years.

For clients wanting to do major renovations, the difference between what is considered as repairs and maintenance and capital expenditure can be complicated.

Costs of making any additions or improvements to the property are not deductible.  For example, adding a new bathroom or additional room to the property will be considered as improvements and capital in nature.  However, this also captures the costs for repairing or replacing damaged property, where the repairs will increase the value of the rental property.

Getting these deductions wrong can be expensive to resolve, in time, taxes and penalties. Better to get it right in the first instance.

Please contact your GECA Advisor on 0800 758 766, if you would like to discuss any major renovation projects you might be undertaking and whether the expenses will be deductible for tax purposes as repairs or maintenance or considered as a capital expenditure.