A Refresher on Residential Property

Income generated from renting out residential property is taxable income and should be included in your tax return. Conversely, there are a number of deductible expenses that can be claimed to reduce your taxable income. Below is a list of five key things to consider when collating your rental income and expenses.

1. Rent in advance

If rent is received in advance, it would usually be recognised in the tax year in which the rent is received.  Assuming a 31 March balance date, if you received two weeks rent in advance (covering 1 April to 14 April 2017) on Friday 31 March 2017, you would return this as rental income in the tax year ended 31 March 2017.

2. Tenancy bonds

Bonds received from tenants at the beginning of a tenancy are not considered rental income. However, if you receive a bond settlement this will generally be considered taxable income.  

3. Deducting expenses

Deductible expenses typically include rates, insurance, interest paid on loans financing your rental property, property manager’s fees and commission, repairs and maintenance, depreciation on chattels (not the building itself), travel and some legal fees (covered below).

4. Travel expenses

Any costs incurred travelling to and from your rental property to perform inspections or repairs generally deductible. If you use your own car for travel, keeping a vehicle log book will allow you to deduct a portion vehicle running costs as travel expenses.

5. Legal fees

Generally speaking, legal fees are subject to the capital limitation when determining their deductibility. For example, legal fees charged for buying or selling a rental property are considered non-deductible as they relate to capital expenditure, although a special $10,000 rule can allow a deduction in some cases.  Legal fees that relate to deriving assessable rental income will be considered deductible, such as drawing up a tenancy agreement and arranging a mortgage to finance a rental property.

For help with your rental property tax obligations, please contact your local BDO adviser.