Private ruling: Rental property expenses
Date of advice: 10 November 2015
Published: November 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction in full for fees paid to entity A? | A1: No. | Q2: Are you entitled to a deduction for a portion of the fees paid to entity A? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 8-1 | Income Tax Assessment Act 1997 - Section 380-35

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt or NANE income, or a provision of the ITAA 1997 prevents it. The government's NRAS provides incentives to property owners. The assistance is treated as non-assessable non-exempt (NANE) income of the recipient under section 380-35 of the ITAA 1997. While derivation of assessable income by way of rent is one objective achieved by participation in the NRAS, the receipt of government incentives, including state government NANE income is another. Apportionment of expenditure is necessary where it serves both an assessable income producing end and some other end: ( Ronpibon Tin NL v FC of T (1949) 8 ATD 431). Expenses are not deductible to the extent they are incurred in gaining NANE income (paragraph 8-1(2)(c) ITAA 1997). Property agent fees and fees for managing a rental property are generally an allowable deduction for rental property owners. The fee paid to Entity A relates to your rental property and the associated management of the property. However as your rental property is used to derive both assessable income and NANE income, the expense for the fee incurred must be apportioned, limiting a claim for any deduction to the portion of costs relating to the derivation of assessable income. The Commissioner believes that the method of apportionment must be fair and reasonable in all the circumstances. Generally, the apportionment of expenses would be made using the following formula to calculate the percentage of deductible expenses: Assessable rental income derived from the property / (assessable rental income + NANE income associated with the property) x otherwise deductible expenses For example: Where you have reduced rental income of $20,000, NANE of $3,000 and rental expenses of $1,000: $20,000 / $23,000 x $1,000 = $869.56 The deductible portion of the expenses is $869.56 Please note, that where a property is jointly owned the allowable deductions are shared according to your legal ownership.

Relevant facts: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | • your application for private ruling including | • correspondence, payment advice and invoice from entity A. | You and your spouse have a National Rental Affordability Scheme (NRAS) rental property. | You receive a tax free tax offset granted by the Government each year. | The process of lodging the relevant paperwork and maintaining NRAS status is managed by entity A who charge a fee for their services. | The property is leased through a separate real estate agent at 20% below market value as required under the scheme.