How to claim rental expenses

Watch: When can I claim a deduction for rental expenses?

Rental expense categories

There are 3 rental expense categories, those for which you:

• can claim a deduction now (in the income year you incur the expense) – for example, interest on loans, council rates, repairs and maintenance and depreciating assets costing $300 or less
• can claim a deduction over several years – for example, capital works, borrowing expenses and the decline in value of depreciating assets
• can't claim a deduction – for example, personal expenses, including expenses arising from your personal use of the property, some expenses of a capital nature and the purchase of second-hand (or used) depreciating assets after 9 May 2017.

There may be some expenses you can claim a deduction for prior to the property being genuinely available for rent – such as interest on loans. You must incur these expenses with the intent to rent out the property. For example, renovating a property you intend to rent. If your intention changes you can't claim your expenses.

It is important to claim each expense under the correct expense type to make sure you treat it correctly for tax purposes.

Claim the right amount of expenses

You will need to work out the amount of the expense that relates to your income-producing activities, if any of the following apply:

• your property is only genuinely available for rent for part of the year
• you use your property for private or personal purposes for part of the year
• you only use part of your property to earn rent
• you rent your property at non-commercial rates (less than market rates)
• you use your investment loan for personal purposes.

If you co-own your rental property with someone, rental income and expenses must be attributed to each co-owner according to your legal interest in the property.

If you rent out part of your property you need to work out your expenses on a floor-area basis.

You don't need to apportion expenses that relate solely to renting out the property, such as advertising for tenants and real estate commissions. These are fully deductible in the year they are incurred.

Positive or negative gearing

Your rental property is:

• Positively geared if your deductible expenses are less than the income you earn from the property – you make a profit from renting out your property.
• Negatively geared if your deductible expenses are more than the income you earn from the property. You can claim deductions for rental expenses against your rental and other income – such as salary, wages or business income. If your other income isn’t enough to absorb the loss, you can carry forward your loss to the next income year.

Expenses you can’t claim

You can’t claim a deduction for:

• expenses not actually paid by you, such as water or electricity charges paid by your tenants
• acquisition and disposal costs, including the purchase cost, conveyancing and advertising costs (instead, these are usually included in the property's cost base, which would reduce any capital gains tax when you sell the property)
• GST credits for anything you purchase to lease the premises – GST doesn't apply to residential rental properties, however, when claiming the expense as a deduction, you claim the total amount you've paid (inclusive of GST, if applicable).

Find out about other expenses you can’t claim below.

Deductions for vacant land

In most cases, you can’t claim a deduction for the cost of holding vacant land. For more information, see Deductions for vacant land.

Supplier ABNs

When you hire a contractor for services and repairs connected with your rental property, you will need to check they have an Australian business number (ABN). If they do not provide you with their ABN, you may have to withhold 47% from the payment you make to them and transfer that withheld amount to us.

You may not be able to claim deductions for these expenses if you don't withhold when you were required to.

How to include rental expenses in your tax return

If you lodge your own tax return using myTax, you need to select:

• 'You had Australian interest, or other Australian income or losses from investments or property'
• 'Other foreign income' for overseas property.

Once you have completed the rental property details and the related income fields, you can add your expenses in the 'Rental expenses' fields.

Watch: How to include rental income and expenses in myTax