From the 1st of July 2017, travel expenses relating to a residential investment property will not be deductible, that being any property investment that hosts a place for residents to reside in.
Why is this happening?
The idea behind removing travel expense deductions was done in order for the Australian Government to combat their concerns on taxpayers incorrectly assigning costs for travel expenses and taking advantage of the system to claim private travel costs. By implementing this piece of legislation the government hopes to improve the tax system through more accurate measures.
Where and Who will this effect?
This legislative act will affect anyone who owns a residential investment property in Australia.
What does this mean?
This means that you can no longer claim deductions for your travel costs incurred to inspect or maintain your rental properties. This includes visiting your rental property, whether it be by car, taxi, flights, or using accommodation.
There is good news though if you were unaware of being able to claim deductions on your residential property travel expenses, or have yet to claim deductions for ‘2016-17 and earlier years for residential properties’ you can still do so!
Here’s how you can still claim:
Claiming travel costs:
- If the inspection remains your main reason for travelling to that specific destination you can be eligible for deductions. It may be hard to get the exact cost for deduction on the basis of fuel used if you did not utilize a logbook for the kilometers, however, if you used a taxi service this may be more of a viable record. Using the ATO’s cent-per-kilometer rate you can work out the exact deduction. (LINK)
- Additionally, if you had to fly to inspect your rental property, book overnight accommodation, and then return home, all these expenses can be allowed as a deduction. Again it needs to be your core reason for travelling in order to accepted as a deduction.
- If you decide to combine personal travel with inspecting your residential rental property you can still include one night of accommodation and the cost of getting to the property to the local destination.
Here are some other Claims you may not be aware of:
Claiming maintenance costs:
- Any costs bared on the basis of preventing or fixing deterioration can be deducted. For example, maintenance costs could include:
- Painting of the property
- Oiling a deck
- Maintaining plumbing
- Additional maintenance costs can be deducted after tenants have left as well, as the maintenance issues are a result of the tenants who previously resided at the property.
Claiming depreciation and building deductions:
- Knowing the assets at your residential rental property and their valuations is an important way to ensure you can claim deductions each year on them.
- For example, Brisbane is known for its humid conditions and as a result, many property rentals are fitted with air-conditioning units. A good air-conditioning systems lifespan would on average last around 10 -15 years. Air-conditioning units for residential purposes can be expected to cost anywhere between $500 and $4000. For example, we can use the figure of $2000. Using the Diminishing Value Method the deductions would then be calculated as follows:
Formula: Base value × (days held/365) × (200%/asset’s effective life)
Cost (base value): $2000
Days held - 1 year (example) = 365
$2000 x (365/365) x (200%/15) = $26.66*
It’s important to stay up to date with the property market and how governmental legislation changes can affect your ownership of properties.
If you're thinking of selling make sure you get a Building and Pest Inspection in order to allow for a fast and profitable sale.