How to Calculate Income from Investment Property?
Calculating income from an investment property in Australia involves several steps. The following is an overview of the process:
- Gross rental income: The first step is to determine the total amount of rental income received from the property over the financial year. This includes rent payments from tenants, any bond refunds, and any other income received from the property.
- Expenses: The next step is to subtract any expenses associated with the property from the gross rental income.
- Taxable income: After claiming deductions for expenses, you will have to calculate the taxable income, which is the net income minus the deductions. This is the amount of income that will be subject to tax.
Expenses to claim as tax deduction from property income
Property Management Fees
If your property is managed by a real estate agent, they charge you a percentage of the rental every week along with other fees. This is mentioned in the monthly and annual rental statement by the property manager.
Interest on the mortgage used to purchase the property
Most of the investment properties are usually purchased with a mortgage on them and it is the biggest expense that you can claim after depreciation. But remember, this expense can be claimed only from the date when the property is rented out or ready for renting out. You can even claim the LMI fees as well.
Depreciation on assets in the property
Depreciation can now a days be claimed only on the new properties and in those cases usually it is the single biggest item of expernse at least in the earlier years of the property ownership. You will need a Tax Depreciation Report from a qualified quantity surveyor in order to claim.
Insurance
You can claim the cost of insurance for the Landlord and Contents Insurance for the property.
Maintenance and repairs
You can claim repairs and maintenance costs in the property as long as it is not an enhancement to the earning capacity of the property. This is usually managed by your property manager as well and can be found on the annual rental statement.
Rates and taxes
Any Rates and Taxes that you pay regularly on the property to the Council or the State Government.
Strata Fees
If the property is managed by a strata body, then you can also claim Strata Management Costs as part of your expenses
Legal and accounting fees
You can also claim any legal and accounting fees as long as it is not associated with acquiring or disposing of the property. Similarly, you can claim the fees paid to the quantity surveyor.
Utilities
In case you are paying any utility costs like water, electricity or NBN, you can claim that too if you are not being reimbursed by the tenant
Painting, Cleaning and Pest Control
If there are any regular cleaning, painting and pest control expenses during the tenancy, then you can claim them too. However, if they are related to making the property ready to be rented out, then you cannot claim them.
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Faq
How is rental property income taxed in Australia?
Rental property income is considered taxable income in Australia and is subject to income tax. The income earned from the rental property must be reported in the individuals or entitys income tax return.
Are there any deductions available for rental property expenses?
Yes, rental property expenses such as mortgage interest, property management fees, repairs, insurance, council rates, and land tax can be claimed as deductions to reduce the taxable income from the rental property.
Is there a difference in tax treatment for short-term and long-term rentals?
Yes, there is a difference in tax treatment for short-term and long-term rentals. Short-term rentals, such as those rented out on platforms like Airbnb, are considered to be carrying on a business and are subject to different tax rules. Long-term rentals, on the other hand, are considered to be passive investments and are subject to different tax rules.
Can I claim depreciation on my rental property?
Yes, you can claim depreciation on certain assets related to the rental property such as buildings, furniture, and appliances. This can help to reduce your taxable income from the rental property.
What happens if I do not report rental income?
Failure to report rental income can result in penalties and fines from the Australian Taxation Office (ATO). Additionally, the ATO may take legal action against individuals who fail to report the rental income.
Can I get help with my rental property income tax?
Yes, you can get help with your rental property income tax from a registered tax agent or accountant. They can assist you in understanding your obligations, claiming deductions, and ensuring that your rental income is reported correctly on your income tax return.
