Australia may be one of the only countries in the world where its people look forward to tax time. At least, Australian property investors do; they are always excited about end of financial year, because property investors have access to numerous tax deductions!
While it’s true that many of the fees involved in property investments are tax deductible, some of the expenses you incur as a landlord are not in fact allowable deductions.
According to the Australian Taxation Office, there are three main types of rental expenses:
- Those that cannot be claimed
- Those that can be claimed as immediate deductions
- Those that can be claimed as a deduction over a number of years
Those that can be claimed immediately means that they will be reflected on the income year that the costs were incurred. These may include bank charges, body corporate fees and charges, council rates and insurance. You may also claim the cost of advertising for tenants, and you can claim interest charges incurred on loans, as long as the property is being rented or is available for rent.
But can you claim your conveyancing fees?
According to the ATO, you may immediately claim some legal costs and lease document expenses, as long as these were incurred in the course of renting out an investment property.
However, broadly speaking, conveyancing fees (and other expenses like stamp duty) charged on the transfer of the property cannot be claimed as deductions.
This is because these expenses are considered to be costs incurred on the purchase and sale of your property, rather than costs that incurred as part of owning your income producing asset. As such, they are deemed to be ‘capital costs’ and are not deductible.
However, all is not lost – you don’t lose out on tax benefits altogether. Instead of being able to claim an immediate deduction, your conveyancing costs will form part of the cost base of your property. This is important, as when it comes time to pay capital gains tax upon the sale of your investment, any money you have spent on conveyancing can be taken into account for the purpose of reducing your tax liability.
Keep in mind that legal expenses incurred during the management of your property are entirely different, and may be tax deductible immediately. Running costs are considered by the ATO to be those that are incurred to maintain the property. For instance, legal expenses associated with the lease would be considered a running cost and would therefore be tax deductible against the rental received.
What are the differences between a conveyancer and a solicitor? Learn more here.
Working out your tax rights and responsibilities can be complicated and at Think Conveyancing, we always advise our clients to seek out the services of an experienced accountant to help you maximize your tax return. Of course, we’re always happy to help with any aspect of our conveyancing requirements, so for more information on our services, please contact our friendly team on 1300 932 738. You can also contact us online here.