An area the ATO is scrutinising is rental properties.
Repairs vs improvements
You need to determine whether an expense is a repair or an improvement. Because something needs to be replaced because of damage or obsolesce, does not automatically mean its a repair. You need to look at the substance of the item being repaired or replaced.
As an example, let's use a toilet as an example.
If a client is fixing something, for example a toilet needs some new parts as it's leaking, that is a repair. This is because its replacing a part, not the whole system.
What if the bowl is cracked and they have to replace the whole system? If they replace the whole toilet, that is considered an improvement.
Improvements need to be depreciated over the life of the asset.
Borrowing expenses
Borrowing expenses are deductible over 5 years or the life of the loan, which ever is less. This includes:
Brokerage fees
Establishment fees
Funding/origination fee
Lender mortgage insurance (LMI)
Travel Expenses
Travel expenses are no longer deductible in most circumstances unless you are:
in the business of letting rental properties i.e. a real estate agency
a corporate entity (company - lets cover this in another article).
another type of investment vehicle
Tax deductions prior to earning income
This another one of those tricky areas. A lot of people will but a property and spend time doing it up so they can get a grater return.
Firstly you need to look at whether it was available for rent. If the property was, the expenses are generally deductible.
If not, you likely will not be able to claim any deductions. Under TR 2004/4, however, it points to the fact that interest may be deductible over this time.
I'm really not sure why interest may be deductible, but other expenses are. But, we have the ruling, so let's stick with it.
If you have any questions around rental properties, let me know.