What you can't claim

Expenses you are not able to claim include:

• acquisition and disposal costs
• expenses not actually incurred by you, such as water or electricity charges borne by your tenants, and
• expenses that are not related to rental of a property, such as expenses connected to your own use of a holiday home that you rent out for part of the year.
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Acquisition and disposal costs

You cannot claim a deduction for the costs of acquiring or disposing of your rental property. Examples of expenses of this kind include the purchase cost of the property, conveyancing costs, advertising expenses and stamp duty on the transfer of the property (but not stamp duty on a lease of property-read the section Lease document expenses). However, if you acquired the property after 19 September 1985, these costs may form part of the cost base of the property for capital gains tax purposes. See also Capital gains tax.

For more information, see the publication Guide to capital gains tax.

Body corporate fees and charges

You may be able to claim a deduction for body corporate fees and charges you incur for your rental property.

Body corporate fees and charges may be incurred to cover the cost of day-to-day administration and maintenance or they may be applied to a special purpose sinking fund.

If the fees and charges you incur include a contribution to a special purpose sinking fund you will only be able to claim a deduction for that portion of the fees and charges that relate to the cost of day-to-day administration and maintenance. This is because payments to a special purpose sinking fund are usually to cover the cost of capital improvements or capital repairs and are therefore not deductible. See Taxation Ruling TR 97/23 Income tax: deductions for repairs. You may be able to claim a capital works deduction for the cost of capital improvements or capital repairs once the cost has been charged to the sinking fund – see Capital works deductions (formerly special building write-off).

If the body corporate fees and charges you incur are for things like the maintenance of gardens, deductible repairs and building insurance, you cannot also claim deductions for these as part of other expenses. For example, you cannot claim a separate deduction for garden maintenance if that expense is already included in body corporate fees and charges.

Borrowing expenses

These are expenses directly incurred in taking out a loan for the property. They include loan establishment fees, title search fees, costs for preparing and filing mortgage documents -including mortgage broker fees and stamp duty charged on registration of a mortgage. They also include other costs that the lender requires you to incur as a condition of them lending you the money for the property -such as the costs of obtaining a valuation or lender's mortgage insurance if you borrow more than a certain percentage of the purchase price of the property.

If you take out an insurance policy that provides for your loan on the property to be paid out in the event that you die or become disabled or unemployed, the premiums are not borrowing costs. Interest expenses are not borrowing expenses.

If your total borrowing expenses are more than $100, the deduction is spread over five years or the term of the loan, whichever is less. If the total cost is $100 or less, it is fully deductible in the first year.

If you repay the loan early and in less than five years, you can claim a deduction for the balance of the borrowing expenses in the year of repayment.

If you obtained the loan part way through the income year, the deduction for the first year will be apportioned according to the number of days in the year that you had the loan.