You can, however, reduce your taxable income by claiming certain deductions. You just have to know what they are.
Here are six tax deductions you might be able to claim, depending on your individual circumstances.
1. Interest on your investment home loan
If your investment property is mortgaged, your interest payments are tax-deductible – as long as you can show your property was rented out during the year.
2. Council rates
You can deduct your annual council rates, but, again, only during periods in which the property was rented. Water supply charges are also deductible if they were not paid by the tenant.
3. Land tax
Land tax is charged in all Australian states, except the Northern Territory, and it’s tax-deductible. Claiming land tax can be complicated if you own several properties or own properties in different states. It’s best to consult a tax adviser who can help you submit a claim correctly.
4. Repairs and maintenance
Repairs and maintenance on an investment property can be claimed, provided they were for wear and tear and not to improve the property. So, for example, the taxman will accept a claim for replacing damaged plumbing but not for retiling the bathroom.
5. Building and asset depreciation
Buildings and assets depreciate over time. On an investment property, you can claim for depreciation under two categories:
- Capital works. The Australian Tax Office (ATO) allows you to claim 2.5% of the construction cost of the property per year for up to 40 years. You are also able to claim for structural improvements to the building in relation to that depreciation.
- Assets. Depreciating assets such as machinery, air conditioning systems, appliances, furniture and even carpets can be claimed.
6. Advertising fees
Most landlords advertise their properties to find tenants, and those advertising costs are tax-deductible. Just make sure you keep the invoices and receipts as proof.
The great thing about owning a positive-cashflow investment property is that it adds money to your pocket. Of course, you have to pay tax on the income your property generates. But, depending on your circumstances, there may be ways for you to legally minimise your tax bill.
Finally, please note that this article contains general advice only, not specific advice for you personally, as we don’t know your individual situation. Also, the ATO changes its rules from time to time. So our suggestion is you speak to a tax professional and a quantity surveyor so you can get expert advice tailored for your unique circumstances.