B1 Intermediate AU 1354 Folder Collection
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Your tenants are in and they're paying you rent. And now it's time to talk about what
deductions you can claim. Many expenses associated with rental properties
will be deductible, but there are rules around what and how much you can claim. And, of course,
you need to keep the receipts for at least 5 years.
Michael, let's talk about what expenses you can claim?
Well, my holiday house is available for rent so there are expenses I can claim immediately,
and some that I claim over a number of years. But there's also some I can't claim at all.
What do mean "Can't claim at all"?
Well, things like the actual cost of buying and selling the property, and any initial
repairs I had to make. Those costs are used when working out any profit, known as a capital
gain, when I sell the property. And if I owned the property equally with my
wife, I could only claim half of the expenses and I would have to declare half of the income.
So we've covered what you can't claim. What can you claim? You mentioned immediate deductions.
Yeah, sure. What comes to mind are things like interest, council rates and travel costs
to collect rent and do repairs.
There are also three types of expenses that may be claimed over a number of years.
First are mortgage set-up costs like loan establishment fees. These are usually claimed
over 5 years. Then, you can also claim for the wearing out
of assets, -- known as depreciation - such as carpet and appliances.
And thirdly there are building costs - these are generally claimed at two and a half per
cent per year. More information about claiming these expenses
is covered in other videos in this series.
So what happens if your property is only available for rent for some of the year?
Then I need to divide up the expenses. So in my case with the holiday house, I can't
claim a deduction for when I use the house myself.
And what if you rent out the property at a reduced rate -- say to family or friends?
In that case what I can claim is usually limited to the amount of rent that I received.
Sounds complicated? Not really. Let's look at what happens when Michael stays in his
house for one month. As this is for his personal use he can't claim deductions for this period.
Here's how he'd work it out.
For all the expenses that occur evenly, he could simply divide them by 12 to get a monthly
rate. That includes interest, council rates, insurance and depreciation.
But some things, like electricity, are directly related to the usage period. So he'd look
at the bill for that period If you only rent out part of your property,
then you can only claim expenses that relate to that part.
As a general guide, you work it out on a floor-area basis.... And calculate what percentage of
the floor area your tenant uses.
If your property is negatively geared - that is, the loan interest and other expenses are
more than the rental income - you may be able to claim the loss against your other income,
such as salary and wages.
If you'd like to find out more and to watch other videos in the series go to ato.gov.au/rental.
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Overview to claiming your rental property deductions

1354 Folder Collection
ben published on June 3, 2016
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