How to (Effectively) Claim Input Tax Credits on Rental Property Expenses
For GST purposes, renting out a residential property is generally an ‘input taxed supply’, which means that landlords are generally not entitled to claim an input tax credit for the GST embedded in any rental property expenses.
However, for landlords who are also employees, there is a possible planning technique to overcome this problem.
Basically, by salary packaging certain rental property expenses, employees may effectively avoid paying the GST on those expenses.
In particular, if an employee is entitled to claim an immediate (i.e., a 100%) deduction for an expense they incurred in relation to a rental property, they should consider having their GST-registered employer reimburse the expense paid (or have the employer directly pay the expense on their behalf), and only salary package the GST-exclusive cost of the expense under a salary sacrifice arrangement.
The employer is in the same position financially, whether paying salary or an equivalent amount for the rental property expenses (provided the employer can claim an input tax credit on the expense, and a deduction for the remainder), but the employee can increase their after-tax income by only effectively paying (i.e., packaging) the GST-exclusive cost for the rental property expenses.