Investing in an Australian property may bring many tax deductions for property investors. Buyers gain an asset along with the added benefits of tax deductions the ATO imposes for investment properties. In this article, we explore the different types of tax deductions available for Australian property investors.
However, in certain instances, the tax deductions applicable may change depending on the type of property, namely that of houses and apartments. (To find out the pros and cons of investing in a house see here)
Depreciation
This easily proves the most beneficial to property investors. The wearing and breaking down of your investment property falls under the category of claimable costs. Depreciation of the complete property, as well as the depreciating assets (such as floors, appliances, etc.), fall under claimable expense. Depreciation applies to assets that possess a limited effective lifetime. This means these assets decline in value gradually over a period of time.
Generally, two types of depreciation become applicable to investment property owners. They include:
- Capital Works depreciation (Division 43)
Investors can claim this depreciation for any wear and tear in the structure of the property. This depreciation applies to any property built after 1987 and can be claimed at a rate of 2.5% per year for up to 40 years. Capital works depreciation includes roofs, walls, cupboards, doors, etc. - Plant and Equipment (Division 40)
If the investment property, in this case, is an apartment, investors may claim an equal or greater amount of depreciation under Division 43 compared to a house. The reason for this relates to the fact that the construction labor for an apartment often ranges higher than a house due to the number of floors.
Investors can claim this depreciation for any depreciating assets within the property. These include all removable fixtures and fittings. The ATO recognizes more than 6,000 depreciable assets such as carpets, blinds, air conditioners, etc.
Apartments may claim more plant and equipment depreciation than houses. The reason for this relates to the fact that apartment owners may claim a portion of the common equipment found in the common areas. This includes depreciating assets such as lifts, gym equipment, and even fire extinguishers.
Repairs and Maintenance Costs
Other tax deductions property investors can claim include immediate deductions for any repairs to the breakdown of the property. These repairs and maintenance include natural breakdown of property as well as sudden, unpredictable damages. The tax deductions for this include the expenses of hiring help as well as the construction needed to fix the damages. These are applicable to both apartments as well as houses.
Other tax deductions for property investors in Australia include:
- Advertising and marketing for rental tenants
These include expenses generated by the investors for advertising and marketing their property for rent. These claimable expenses include print media, digital media, and any other type of advertising method used. You will need to claim these expenses within the same year they have been generated.
- Insurance
Insurance expenses include landlord insurance. This encompasses any tenant-related risks such as damage to property or anything done to cause a loss in rental income.
- Land Tax (more on this here)
