The Australian Tax Office (ATO) has clarified negative gearing for rental properties as tens of thousands of Australian property investors submit their annual tax returns.
According to the ATO, when investors complete their tax return for the relevant year, they may be able to claim a deduction for their rental property expenses against their combined rental and other income (such as salary, wages or business income). If the other income is not sufficient to absorb the loss, they can carry the loss forward to the next year.
Investors can claim some of the rental property expenses the year they incur them, others can be claimed progressively over a number of years.
What Expenses Can be Claimed Immediately?
Expenses that can generally be claimed the year they are incurred include:
- Interest on the load used to purchase the property;
- Repair costs, for example, repairing the guttering or windows damaged in a storm.
What Expenses Can be Claimed Progressively?
Expenses that are deductible over a number of years include;
- Most of the borrowing costs;
- The cost of depreciating assets and structural improvements.
Rental property owners can claim a tax deduction for the cost of fees (such as regular management fees or commissions) they pay to a property manager or agent. The best evidence to support their claims are statements from their property manager or agent.
What Can Investors Not Claim?
When it come to property management fees or commission, investors cannot claim an immediate tax deduction for:
- Commissions or other costs paid to a property manager or other person for the sale or disposal of a rental property;
- Buyer’s agent fees paid to any entity or person engaged to find a suitable rental property to purchase.
Investors can use these costs to reduce the capital gain they might make when they eventually sell the rental property.
For more information about rental property expenses and deductions go to www.ato.gov.au
Source : REIQ Journal (September 2010)