When it comes to investment properties, a lot of people forget that you can claim for the depreciation of the property. The increase in the value is in fact the increase in the land, not the house itself. The ATO has made a provision to allow for claiming the depreciation of the house, however the process is quite complex. The process can be simplified by engaging a quantity surveyor, as they will inspect the house and prepare a report stating how much the house is likely to depreciate each year depending on such factors as the construction materials used, including the frames and windows etc. Please contact our office if you would like a referral to a quantity surveyor.

Essentially you are able to depreciate a house over 40 years, so if you purchase a house that is 10 years old you can only claim depreciation on the property for the remaining 30 years.  A good quantity surveyor will find ways for owners to claim at least some depreciation on an older property, and you can also claim depreciation on improvements to the property. The surveyor can revise the initial report for renovations to ensure that you can claim these over a number of years as well.

Owners of investment properties are entitled to expenses incurred in connection with the investment.  Expenses fall into two categories - those that you can claim in the year they occurred, and those that you must deduct over a number of years. 

Expenses that you can claim in the year they occur

  • Repairs and Maintenance - there are a number of rules surrounding what is considered capital versus non-capital repairs, and these rules are based around the materials used and if there is a renewal or replacement.  Essentially a non-capital repair is to correct a defective or worn out area of the house, or to return a deteriorated area to its former condition. 

  • Telephone, Stationery and Postal Expenses

  • Management Fees to Real Estate Agents

  • Body Corporate Fees

  • Legal costs in regards to leases

  • Travel Expenses - to inspect the property, collect rent, show prospective tenants through the property, to carry out repairs or visiting the real estate agent

  • Rates, Water Rates and Land Tax

  • Insurance Premiums

  • Advertising for tenants

  • Cleaning (including rubbish removal)

  • Gardening and Mowing

  • Electricity and Gas

  • Bookkeeping or Accounting Fees

  • Bank charges on the account used to receive rental income and pay expenses (if you keep a separate account)

  • Pest Control

Expenses that you can deduct over a number of years

  • Borrowing expenses associated with borrowing the money and setting up the loan for the purchase of the investment property

  • Capital Assets (such as dishwashers and hot water systems) but also for capital works deductions (such as a replacement kitchen)