Technically, commercial property rental income is not tax deductible. You must declare the full amount on your income tax return alongside anything else you earn. However, while you can't deduct the rent itself, you can claim some of the associated running costs.
As with all income, anything you make from renting out a commercial property that you own must be declared for tax purposes. You'll pay income tax on any profit you make from renting out your property, just like you would with any other form of income.
As a commercial landlord, you can claim tax deductions for costs associated with maintaining the property. Costs related to immediate maintenance or management can usually be claimed straight away. Other expenses that you accrue over a longer time period, such as the costs associated with replacing worn away carpets, furniture and decor, is claimed over a number of years as a depreciating asset.
You can also usually claim interest on loans straight away.
Commercial landlords cannot claim back costs associated with buying or selling the property. These expenses are dealt with in capital gains tax.
Owners are not allowed to deduct expenses accrued by their tenants, such as utility bills. They also cannot claim for any renovations that are not classed as necessary maintenance and are at the landlord's discretion. For example, choosing to expand the property or do some minor cosmetic repairs when the property is empty.
If you're registered for GST, or are required to be, you're liable to pay it on the rent you charge. However, you can claim GST credits on purchases associated with managing the premises, such as hiring a commercial property manager. The purchases you claim for have to be solely for business use and include GST in the price you pay. You must also be able to provide some form of receipt or proof of payment. If the purchase is worth more than $82.50, you must also submit a valid tax invoice.
GST is submitted separately to your annual income tax returns, and is usually managed on a quarterly basis. Your GST credits form part of your BAS (Business Activity Statement).
At Ray White Surfers Paradise we help many commercial landlords manage their properties. If you're looking for a new investment, or a commercial property manager, get in touch today to find out more.