Applicant and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2011/2025)
Judgment date: 21 March 2012
Date published: 5 September 2012

Summary of decision:
Outlines the ATO response to this case which concerned whether certain outgoings claimed by the taxpayer to be deductible rental expenses were in fact incurred in the course of deriving rental income.

Overview of facts:
During the relevant period, the taxpayer owned several rental properties in regional New South Wales. | For the 2007 income year, the taxpayer lodged an income tax return claiming a deduction of $6,670 for expenses in respect of maintaining the properties. | Sometime later, the taxpayer requested that her 2007 income tax assessment be amended to increase the claim by $5,208. | The Commissioner disallowed the additional claim on the basis that he was not satisfied that there was a nexus between the expenses claimed by the taxpayer to have been incurred and the income producing activity; namely the renting out of the properties. He also disallowed the original deduction of $6,670. | In concluding that there was no nexus between the expenses and the income producing activity, the Commissioner relied on the fact that in the 2007 income year the taxpayer did not earn any rental income. Further, the Commissioner was not satisfied that the property was available for rent in the 2007 year, or that the additional rental expenses claimed as deductions had been sufficiently substantiated. | Issues decided by the court or tribunal | Whether the property was available for rent in the 2007 financial year ; | The Tribunal found that the property was available for rent in the 2007 financial year. | If the property was available for rent , whether the taxpayer incurred and was entitled to a deduction for rental expenses totalling $ 11 , 878.47 or a similar figure ? | The taxpayer was only able to substantiate before the Tribunal that the following expenses were incurred: $100 for lawn mowing; $245 for insurance and $102 for advertising. Accordingly, the Tribunal found that the taxpayer could only claim these amounts as deductions.

Issues decided:
Whether the property was available for rent in the 2007 financial year ; The Tribunal found that the property was available for rent in the 2007 financial year. If the property was available for rent , whether the taxpayer incurred and was entitled to a deduction for rental expenses totalling $ 11 , 878.47 or a similar figure ? The taxpayer was only able to substantiate before the Tribunal that the following expenses were incurred: $100 for lawn mowing; $245 for insurance and $102 for advertising. Accordingly, the Tribunal found that the taxpayer could only claim these amounts as deductions.

ATO view of decision:
The case was decided on its facts and will not have any impact on any existing or future litigation proceedings.

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: Income Tax Assessment Act 199 8-1
Case references: Case R118 (1984) 84 ATC 773 27 CTBR (NS) 1318 Fletcher v Federal Commissioner of Taxation [1991] HCA 42 173 CLR 1 22 ATR 613 91 ATC 4950 Re Inglis and Federal Commissioner of Taxation (1987) 87 ATC 2037 Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15 78 CLR 47
Subject references: Assessment of income Rental property deduction