Expenses deductible over several years
Borrowing expenses, amounts for decline in value of depreciating assets, and capital works deductions may be claimed over a number of income years. It’s important to have a professionally prepared depreciation schedule if you want to claim for depreciating assets, so contact your local Quantity Surveyor for assistance if you need to organise or update an existing one prior to submitting your tax return.
Borrowing expenses include loan establishment fees, title search fees charged by the lender, costs for preparing and filing mortgage documents, mortgage broker fees (we don’t charge fees, but some do), stamp duty charged on the mortgage, fees for a valuation required for loan approval and lender’s mortgage insurance. Borrowing expenses exceeding $100 are spread over five years or the term of the loan, whichever is less, otherwise they are deductible in the year incurred.
When you buy an investment property, you’re essentially purchasing the building plus other items of ‘plant’, such as the air-conditioner, cooker and hot-water service. These are depreciating assets and you can claim depreciation for them, provided you have a proper depreciation schedule, as mentioned above. If you have a depreciation schedule, you can deduct an amount equal to the decline in value of the depreciating asset during the income year.
Capital Works Deductions
Certain kinds of construction expenses can be claimed as capital works deductions. For example, if you add a room or remove an internal wall, these deductions are claimable once the construction is finished, and are generally spread over a period of 25 or 40 years. The capital works deductions you claim will be taken into account when working out your capital gain or capital loss from the rental property.
We hope these tips come in handy when preparing for tax time. Alternatively, you could talk to us about how you could use it to continue building wealth for your future through your property investments. If that’s the case, just give us a call. We are only too happy to help!