There are many important decisions to make as a landlord and balancing outgoing and incoming expenses is paramount.
Landlords want to maximise cash flow and boost the return from their investment property. When considering how best to do this, questions surrounding whether to include utilities for a rental property often arise.
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Advantages of including utilities in a rental property
One of the main advantages of including utilities for a rental property is that bills don’t need to be double handled. Rather than receiving a bill, sending it to the tenant and collecting the sum in time for payment, the landlord can simply include it in the cost.
This gives the landlord the potential to charge a slightly higher rental price. Plenty of prospective tenants will love the idea of having utilities included with the rent as it reduces stress and effort on their part.
For electricity and gas, if a premise is not separately metered the landlord is required to include utilities for the rental property. A premise is considered separately metered if the usage by the tenant is measured distinctly from the usage of the landlord. While this is a requirement under most tenant agreements, it can prove to be beneficial for the landlord. Including utilities will save the landlord time and effort in calculating the percentage of energy used by the tenant.
Utilities paid by the landlord are also tax deductible. The Australian Taxation Office governs legislation that allows landlords to claim an immediate deduction for costs like electricity and gas in the year the expense was incurred.
If the tenant covers the cost of electricity and gas, the landlord cannot claim this.
Disadvantages of including utilities for rental property
Including utilities can be beneficial but there are certain drawbacks. The landlord will have higher financial responsibilities and even heightened liability.
There is also the risk of tenants having an ‘all-you-can-eat’ attitude. That is, when tenants don’t have to pay for consumption they often consume more. The landlord may end up paying a hefty amount on top of their existing expenses if this is the case.
If electricity or gas rates go up, this will also increase the utility bills. Even if a landlord has previous billing information to base their pricing on, utilities can be unpredictable. Price fluctuation and market conditions can both affect the price you pay each month.
Other considerations
If a tenant is paying for utilities, will the payments be fixed or variable? It’s important for landlords to consider this before leasing the property. A fixed rate is typically more convenient for both parties and can even strengthen the landlord-tenant relationship. On the other hand, a variable rate is harder to manage but is more reflective of the actual costs being paid.
Landlords should also think about the structure of utility payments. Will the tenant pay for utilities and rent as two separate expenses or as one total cost? Will there be an additional fee if utility payments are late?
It’s important to remember there is no right or wrong way when it comes to utilities for a rental property. There are several advantages and disadvantages for each investor scenario. Careful planning and proper consideration of your financial situation will help you make the best decision for your investment property.
I live in a strata unit and my landlord insists on all utility bills being in his name, but I have to reimburse him for all of them in full (except for water, I just pay usage, not rates). He doesn’t seem interested in helping me determine if there is an electrical fault (my last electricity bill almost tripled with no explanation). Is this likely because he is in fact claiming my electricity bill payments on tax? I do not get receipts for bill payments and I am unsure of how it could be legal for me to be paying so much for electricity yet he gets to claim the money I am paying on tax..
Hi Cynthia,
Thanks for your comment.
We are only qualified to provide information directly related to depreciation. We are unfortunately unable to give any advice regarding this specific scenario.
We recommend discussing your options with your property manager (if you have one) or asking the landlord directly to provide you with further clarity. Another option if you are not satisfied with the outcome and wish to take it further, could be to seek advice from an administrative tribunal.
Thanks,
The BMT Team
So just wondering about the electricity deduction here, saying that if the property is letted to multiple young professionals. For ease of management, the landlord charges rent that include utilities to each renter, and the electricity fee is under landlord’s name and is being paid by landlord, wouldn’t ATO see this as double claim when landlord is claiming the electricity while the renters are also claiming electricity if is working from home? So just wondering how that works?
Hi David,
Thanks for your comment.
If the landlord is the one who is paying for the electricity, then they have the right to claim it as a tax deduction. However, if they are passing this fee onto the tenants and receiving income for it specifically in the rent, the landlord cannot claim the deduction as they are not out of pocket for the expense to enable a claim.
Generally, only usage is passed on and supply charges paid by landlord in which case these supply charges could be claimed by them. If there is a difference between the amount added to rent and the usage that has to be covered by the landlord, this also can be claimed.
Thanks,
The BMT Team
If we purchase a rental property in the ACT and all the previous landlord has recently replaced all the windows. Can you claim depreciation. also do you have an office in the ACT
Hi Stephen,
In regard to the window question, it will depend on the age of the property and if any other renovations have been completed since it was built.
We do have an office in Canberra. You can find the details here: https://www.bmtqs.com.au/contact-us/canberra.
Thanks,
BMT Team
You raise an interesting issue, especially where a solar (both Electricity & Hot water) is included in the rental. Also where a battery storage pack is included with the solar electricity. This provides significant benefit to the tenant, but I am unsure how it should be handled for tax purposes. The depreciation on the asst value of the items is straight forward, but is there any further deductibility for the usage component.
Many thanks
Hi Peter,
We’d recommend contacting one of our staff by calling 1300 728 726 or requesting a quote online (https://www.bmtqs.com.au/apply-online).
Alternatively, we can get our staff to contact you via email.
Thanks,
BMT Team