Landlords of negatively geared investment properties claim millions on gardening, office costs: ATO

The expenses of landlords who negatively gear investment properties have been revealed in new figures showing property owners collectively spent millions of dollars on gardening, office costs and travel.

The largest deduction in total for loss-making rental properties was interest on loans, at $18 billion during financial 2016-17, according to the most recent Australian Taxation Office statistics.

Capital works cost $2.69 billion in total, followed by plant depreciation ($2.27 billion), council rates ($1.98 billion) and repairs and maintenance ($1.86 billion).

Other expenses included the $41.73 million landlords spent on stationery, telephone and postage costs related to their investment properties, plus $269.43 million of travel expenses and another $145.18 million for gardening and lawn mowing costs.

Under current law property investors who are making a loss — as loan interest is higher than the net rental income minus the expenses associated with owning the property — can claim the loss as a tax deduction.

Negative gearing has been a hot topic in the election campaign. The federal opposition wants to restrict negative gearing tax breaks to new properties only while grandfathering existing arrangements, while the Coalition plans to keep the law as is.

Expenses claimed for loss-making rental properties, 2016-17

Source: ATO

In the 2017 budget, the Coalition made tweaks to the practice by disallowing deductions for travel expenses and limiting plant and equipment depreciation deductions.

Travel deductions had been “probably the biggest lurk” among the expenses claimed by landlords, Grattan Institute fellow Brendan Coates said.

“There’s certainly lots of anecdotal evidence where people had investment properties on the Sunshine Coast or the Gold Coast and it was convenient to be able to head up for the weekend and check everything was OK and have a nice holiday at the same time,” he said.

“Office expenses for having investment property should be pretty small. It doesn’t take a lot of time to manage the investment property, but surprisingly across Australia you’re spending $40 million.”

It made sense that interest on loans was the largest deduction, while capital works also made sense, he said.

“The broader point is does it make sense for us to be allowing interest deductions on wage or salary income on existing property? We’ve come to the conclusion it’s probably not,” he said.

UNSW Professor of Economics Richard Holden said the categories of expenses that could be claimed looked “fine”.

“It’s a bit hard to tell in the aggregate whether these are appropriate, but they don’t look unreasonable to me,” he said.

“There’s been lots of press coverage of the ATO cracking down on things in these categories that are not legitimate, and it seems like those are being taken care of.”

Almost nine in 10 property investors who claim tax deductions on their rentals are making errors, the ATO warned recently after auditing more than 300 rental property claims.

In response to the figures, Treasurer Josh Frydenberg said Labor’s policy would overturn a fundamental principle of tax law that expenses incurred in earning income are deductible.

“In relation to the purchase of existing property, this will mean investors will no longer be able to deduct interest, maintenance, council rates, strata fees and other costs against their salary,” he said in a statement to Domain.

“This is just another example of the sledgehammer approach Labor is taking to Australia’s housing market and the economy.”

The opposition did not respond to a request for comment.