It’s not uncommon for landlords to be confused about what they can and can’t claim for their rental properties. What often seems to make perfect sense in the real world does not always make sense for the Australian Tax Office (ATO).
In general, deductions can only be claimed if they were incurred in the period that you rented the property or during the period the property was available for rent. This means a tenant needs to be in property or you are actively looking for a tenant. If, for example, you don’t put a tenant into the property so that you can renovate it, then
you might not be able to claim the expenses during the renovation period if it was not rented or available for rent during this time (there are some exceptions to this general rule). There needs to be a relationship between the money you make and the deductions you claim. Here are a few common problem areas:
Travelling to inspect your property
You can claim the cost of travelling to inspect your rental property. For example, if you fly interstate to inspect your property, stay overnight then fly home, you can claim the full cost of the trip. If however, the purpose of the travel is a holiday and the inspection is incidental to it, the trip is non-deductible except direct expenses and a reasonable portion of your accommodation.
Interest on bank loans
Only the interest on repayments for investment property loans, and bank charges, are deductible - not the actual loan itself.
Repairs & maintenance
Expenses you incur for repairs and maintenance are deductible if the expenses relate to wear, tear, damage through rental activities.
If the repair improves function or if it replaces an entire structure (e.g. a whole fence as opposed to repairing damaged palings), it’s unlikely to be deductible but will be capital and depreciated over time.
Rental income from overseas
If you are an Australian resident, the ATO looks at your worldwide income. This means that if you own rental property overseas, you have to declare any income earned in your tax return - even if you have lodged a tax return and paid tax on the rental income in the country where the property is located.