Claiming your rental property deductions
With more people earning income from property investments than ever before, the Tax Office
will again scrutinise rental property deductions when people lodge their 2003-04 income tax
To help you meet the tax obligations associated with your rental property investment, the Tax
Office offers some important advice.
If you have a rental property, you can claim a deduction for certain expenses you incur for the
period your property is rented or available for rent. There are three categories of rental
• expenses you can't claim;
• expenses for which you can claim an immediate deduction in the year you incur the expense;
• expenses which are deductible over a number of income years.
Some of the common mistakes that occur in claims for rental property deductions include:
• Claiming the cost of carrying out initial repairs – such as rectifying damage, defects or
deterioration that existed at the time of purchasing the property - as immediate
deductions. These costs are capital expenditure and may be claimed as capital works
deductions over either 25 or 40 years, depending on when they were carried out.
• Claiming construction costs, which are eligible for capital works deductions, as decline in
value deductions (previously known as depreciation).
• Claiming renovation costs as deductions for repairs - again, these are expenses of a
capital nature and may be claimed as capital works deductions. The Tax Office is
investigating claims for repairs which are really capital improvements, such as
remodelling bathrooms and kitchens and adding a deck or pergola.
Including the cost of the land in capital works deductions (ie as part of the cost of
constructing the rental property).
• Overstating interest deductions by including amounts related to private borrowings –
interest on a loan taken out for both income-producing and private purposes, such as the
purchase of a rental property and a private motor vehicle, nee