How to Lodge Rental Property Income Tax Return

I get asked this question a lot many times so I decided to write up this article. Investment on Rental properties is on rise these days.

Factoring in gross rental yields and capital gains, CoreLogic calculates that housing as an asset class, earned a total annual return of 14.7 per cent based on the combined capital cities index results. 

These days advertising rental properties are not difficult. Websites such as Stayz [2]and Airbnb[3]are a place to start. That’s all good but how about reporting your income to Australian Tax Office. Each investor must report their rental income to Australian tax Office through lodgment of their personal income tax returns assuming the property title is in Individuals name.

Rental Property Income Tax Return is a part of an individual’s personal income tax if the property is owned by the Individual. An Individual has to report their rental income in a financial year in his/her income tax return and claim certain tax deductions to reduce the income from rental property.

There is no separate tax for rental property [like a company tax] but the total profit or Net Rental Income on the rental property is added to the individual’s personal income earned from various sources and the marginal tax is paid on the total income earned.

When a rental property is jointly owned by individuals, all the individuals will be jointly and severally responsible for liabilities associated with the property.

What Income and Deductions should I consider for investment property tax?

INCOME YOU MUST DECLARE

You must declare the full amount of any rent and rent-related payments that you receive, or become entitled to, on your tax return. Such payments include:

  • rental bond money if you become entitled to retain it – for example, because a tenant defaulted on the rent or because of damage to your rental property requiring repairs
  • an insurance payout to compensate you for lost rent
  • a letting or booking fee
  • a reimbursement or recoupment for deductible expenditure, such as an amount from a tenant to cover the cost of repairing damage to your rental property (where you would include the whole amount you receive from the tenant in your income and claim a deduction for the cost of the repairs)
  • rent you receive from renting out a room or a whole house or unit for a short time basis, through a website or app. 

EXPENSES FOR WHICH YOU CAN CLAIM AN IMMEDIATE DEDUCTION

Expenses on Rental property are Tax Deductible. The individual must keep all receipt and or Diary records where applicable to claim tax deductions. Expenses for which you may be entitled to an immediate deduction in the income year you incur the expense include:

  • advertising for tenants
  • bank charges
  • body corporate fees and charges
  • cleaning
  • council rates
  • electricity and gas
  • gardening and lawn mowing
  • in-house audio and video service charges
  • insurance – building – contents – public liability
  • interest on loans
  • investment property depreciation
  • land tax
  • lease document expenses – preparation – registration – stamp dutyl
  • legal expenses (excluding acquisition costs and borrowing costs)
  • mortgage discharge expenses
  • pest control
  • property agents fees and commissions
  • quantity surveyor’s fees
  • repairs and maintenance
  • secretarial and bookkeeping fees
  • security patrol fees
  • servicing costs, for example, servicing a water heater
  • stationery and postage
  • telephone calls
  • rental tax-related expenses
  • travel and car expenses – rent collection – inspection of property – maintenance.

NET RENTAL INCOME = RENTAL INCOME – RENTAL EXPENSES

NET RENTAL INCOME

Here is an example of how to calculate net Rental Income.

Rental property Example

N
Income
Rental income
NEGATIVELY GEARED PROPERTY

 $                    20,500.00
 
POSITIVELY GEARED PROPERTY

$                  25,500.00
Other rental related income $                       1,000.00 $                     1,000.00
Gross rent — A $                    21,500.00 $                  26,500.00
Expenses
Advertising for tenants $                          220.00 $                        220.00
Body corporate fees and charges $                       1,050.00 $                     1,050.00
Borrowing expenses $                          289.00 $                        289.00
Cleaning $                          120.00 $                        120.00
Council rates $                       1,454.00 $                     1,454.00
Deductions for decline in value $                       2,558.00 $                     2,558.00
Gardening/lawn mowing $                          250.00 $                        250.00
Insurance $                          980.00 $                        980.00
Interest on loans $                    15,500.00 $                     9,900.00
Land tax $                          250.00 $                        250.00
Legal expenses $                       1,200.00 $                     1,200.00
Pest control $                          130.00 $                        130.00
Property agent fees/commission $                       1,258.00 $                     1,258.00
Repairs and maintenance $                          990.00 $                        990.00
Capital works deductions $                       2,889.00 $                     1,200.00
Stationery, telephone and postage $                          150.00 $                        150.00
Travel expenses $                          559.00 $                        559.00
Water charges $                       1,016.00 $                     1,016.00
Sundry rental expenses $                          250.00 $                        250.00
Total expenses — B $                    31,113.00 $                  23,824.00
Net rental income or loss — A – B -$9,613.00 $2,676.00

You can Download a Rental Property Calculation Worksheet  Rental-Income-Calculator

Buying a home is a major decision that takes planning, research and careful budgeting. Here are some tips from MoneySmart to help you get started.

I provide all type of rental property taxation services. If you need help with your tax returns for rental property or other taxation related matters please contact us.

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