How to claim a tax refund when buying an investment property in Australia?

First, we need to be clear about which costs are tax-deductible, so you don't miss any deductible items and end up paying more tax than necessary.

1. Interest on loans;

2. Borrowing Expenses – if the amount is under A$100, it can be claimed in the same tax year; if over A$100, it must be deducted over 5 years;

3. Capital Works Deductions – when purchasing an investment property, you need to engage a professional quantity surveyor to prepare a depreciation schedule. Refer to Division 43 in the report, which your accountant will use to prepare your tax return;

4. Depreciation on Plant – this amount will also appear in the depreciation schedule. Refer to Division 40 in the report. If major fixtures are repaired or renovated during the holding period, a professional firm will need to adjust the future depreciation assessment;

5. Body Corporate Fees and Charges – apartments and townhouses generally have these fees, whereas standalone houses do not. This fee mainly covers prepaid maintenance costs, the property manager's salary, compulsory building insurance, accounting fees and so on. It typically ranges from A$2,000 to A$5,000 per year;

6. Council Rates – fees charged by the government, mainly used for community landscaping and sanitation, rubbish collection and so on, generally A$1,200 to A$1,600 per year;

7. Water Charge – note that water usage costs borne by the tenant are not deductible, but water supply and sewerage charges are deductible;

8. Advertising for tenants;

9. Cleaning;

10. Gardening and Lawn Mowing;

11. Insurance – for apartments and houses, compulsory building insurance is already included in the body corporate fees, so no separate payment is required, but the landlord can choose to take out landlord insurance to guard against damage to property inside the premises or loss of rent;

12. Land Tax;

13. Legal Fees – note that legal fees incurred at the time of purchase are not included here;

14. Pest Control – this only applies to standalone houses. For apartments and townhouses it is covered by the body corporate fees;

15. Property Agent fees and Commissions;

16. Repairs and Maintenance;

17. Stationery, telephone and postage – phone and postage costs incurred by the landlord in dealing with the real estate agent;

18. Travel Expenses – travel costs incurred for inspections or collecting rent. For example, if you live in Melbourne and purchase an investment property in Brisbane, the airfares and other costs incurred in coming to handle rental matters are tax-deductible;

19. Other miscellaneous property rental expenses.

Not all of the above expenses will apply. We have listed them so thoroughly simply to help you avoid missing any when claiming your tax return.

There are also a few other points to keep in mind:

1. If a property is held by multiple owners, each owner must declare their taxes separately according to their ownership share;

2. If a property was purchased in the current financial year, costs paid to the seller at settlement – such as council rates, body corporate fees and water charges – are tax-deductible. For details, refer to the Settlement Sheet;

3. If a landlord suddenly has a significant increase in personal income during the current financial year – such as a bonus or exercising options – they can prepay the next financial year's loan interest on the investment property in advance, thereby achieving a greater tax refund;

4. If an owner-occupied home is converted into an investment property, the costs are apportioned, and costs and expenses incurred during the owner-occupied period are not tax-deductible;

5. Relevant records and invoices should be properly kept and categorised.