Does your SMSF own a residential investment property? Do you know what deductions are able to be claimed by the fund in connection with that property?

12 Dec 2018

Lyn Formica

Head of SMSF Technical & Education Services

SMSFs can claim deductions for certain expenditure incurred by the fund provided the residential investment property is rented or available for rent. The types of expenditure which can and can’t be claimed and your record keeping requirements are summarised below.

Expenditure which can generally be claimed

The sorts of expenditure for which a deduction can generally be claimed includes:

  • advertising for tenants
  • body corporate fees
  • cleaning
  • council rates
  • decline in the value of any depreciating assets held in connection with the property (eg furniture & fittings)
  • electricity and gas
  • gardening and lawn mowing
  • insurance (building, contents, public liability)
  • land tax
  • lease document expenses (preparation, registration, stamp duty)
  • pest control
  • property agent fees and commissions
  • repairs and maintenance
  • water charges

However, this list is subject to the following qualifications:

  • Where a property is untenanted for a period, deductions are only available where the property was genuinely and publicly advertised for rent and the condition of the property meant it was suitable for rent. 
  • SMSFs are only able to claim deductions for costs which are actually incurred by the fund (ie not those reimbursed by the tenant).
  • Where a property is only used partially for producing assessable income (eg a portion of the fund’s income is exempt from tax because the fund is paying retirement phase pensions), only a portion of these costs are deductible
  • Since 1 July 2017, the decline in value of second hand depreciable assets acquired since 9 May 2017 is not deductible. This means existing plant & equipment acquired as part of a property purchase post 9 May 2017 is generally not depreciable and SMSF trustees are generally no longer able to use a quantity surveyors’ report to increase depreciation deductions.

Expenditure which generally can’t be claimed

Expenditure for which you generally can’t claim a deduction includes:

  • acquisition and disposal costs for the property
  • costs to attend seminars about helping you find a rental property to invest in
  • travel expenses to inspect a property before you buy it
  • since 1 July 2017, travel expenses relating to inspecting, maintaining or collecting rent on the property (these costs are also not included in the cost base of the property)
  • as noted above, since 1 July 2017, the decline in value of second hand depreciable assets acquired since 9 May 2017 and held in connection with the property

Record keeping requirements

To substantiate the fund’s tax calculations, as trustee, you should keep records of both the income and expenses relating to the rental property. In relation to expenses, your records should include:

  • the name of the supplier
  • the amount of the expense
  • the nature of the goods or services, and
  • the date the expense was incurred (or a fund bank statement covering that period)

These records should be kept for five years from the end of the year to which the expense relates.