Short term rental property deductions

Important facts about leasing your short term accommodation investment property

How to claim tax deductions for your (partially) private use short term accommodation investment property…and more

Do you want to self-manage your rental
Property or outsource it?

The first question you need to ask yourself is; Do you want to self manage your short term accommodation rental property – or outsource it?
Because there’s pros and cons to both.

Outsourcing verse self management of your investment property

Outsourcing is ideal for those who are time poor or live a fair distance from their investment property.
My personal experience has taught me that you need to be within about a 1hr drive of your investment accommodation property and need to be able to drop everything at a moments notice.

Because things can go wrong. And quickly

Like guests losing keys, hot water systems exploding and leaking throughout your unit or simply needing to be onsite to let trades in to fix something

The downside to outsourcing your property management is the additional overheads involved.
Agents tend to charge around 10% of the letting amount as their letting fee. Plus the monthly accounting and yearly fees

That’s a lot!

But your peace of mind and hands off lifestyle may think that’s great value. It all
Comes down to personal circumstances and energy levels.

What items qualify for depreciation deductions in short term accommodation?

items that qualify for depreciation deductions in short term accommodation are broken into two main categories:

Capital Works deductions

Capital works includes any structural and/or permanent improvements to the property and the land. The structural improvements must be carried out after September 1987 for the main residence and after February 1992 for landscaping, sheds, swimming pools, etc

Painting is a great example of a permanent improvement made to virtually every investment property I’ve inspected over the past 15-years that is tax deductible.

Plant and Equipment deductions

Virtually every short term accommodation comes with plant and equipment. The only properties I can think of that don’t are rural shacks used for adventurers and hunters. In these properties there may not be anything deductible other than fencing, letterbox, a building (if newer than September 1987) and a few other bits and pieces.
But for the vast majority of short term rental properties there’s a full gamut of furniture, fixtures and equipment.
For example:

    • TV, DVD Player and Radio
    • Microwave
    • Couches, beds and coffee tables
    • Pool toys in resort complexes

and so on

All of these items, and more, are valid and eligible tax deductions if they were purchased brand new and for tenant use.

What rental property items are excluded from tax deductions?

Short term accommodation properties typically come fully furnished for a walk-in-walk-out arrangement. Right down to spare bedding and ironing board.
But not everything can be classed as an eligible tax deduction.

To claim the tax deduction on the plant and equipment items (division 40) the item must be brand new at the time you first started using the item as part of the rental agreement.

This means, you cannot claim deductions for second hand items you purchased to furnish the property or second hand items that may have been included in the sale of the property when you purchased.

Fortunately, all good quantity surveyors and accountants know the intricacies of these ATO rules and can help you to maximise your tax savings.

Is your property worthwhile ordering a tax Depreciation report?

Most properties are worth getting a report. But not always.
The very best thing you can do is contact your quantity surveyor and ask them for a free quote and estimate of deductions. The quantity surveyor will often provided a guaranteed minimum yearly depreciation amount too.

When should you order your depreciation schedule?

The best time to order your depreciation report is as soon as you know you are going to be using your property for income producing purposes.
IE: renting out your property.
The reason is 3-fold

  • You know you won’t miss out on any unclaimed deductions. (This is a real possibility if you leave it too late)
  • It will make your Accountant’s life easier. (This will speed up your tax returns and probably save you extra accounting fees)
  • Your Quantity Surveyor will have an easier time of it. Finalising your reprot faster and able to charge you less money

What to do next

If you have an investment property used for short term accommodation there are undoubtedly tax deductions available to you. All you need do is speak to your preferred quantity surveyor or a good accountant for personalised advice.

To do this, simply get in touch with us and I’ll personally look over your property via my computer and give you an eyeball estimate of deductions.

In the meantime, you may find value in reading my other articles or checking out the real world results my clients have been getting with their tax depreciation schedules.

Another good resource for you is my tax depreciation HQ page where you’ll find even more information regarding how to save tax on your investment property.

This article was written by William Callaghan A.A.I.Q.S.
2nd generation Quantity Surveyor and founder of WRC Quantity Surveying

Published May 2023