Private ruling: Rental Property Deductions
Date of advice: 6 September 2016
Published: October 2016
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Questions and answers: | 1. Is your property genuinely available for rent? | Yes | 2. Are you entitled to an immediate deduction for the following expenses? | • Council Rates | • Insurance | • Interest on Loan | • Water | • ESL | • Power | Yes | 3. Are you entitled to capital works or capital allowances deduction for the following expenses? | • Bathroom Vanity | • Hot Water Service | • HW Heater | • Ceiling Fans | • Floor & Wall Tiles | • Kitchen Benches | • Kitchen Range Hood | • Dishwasher | • Wall Vented | • Laundry Trough | Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 Division 43

Reasons for decision: Summary: You are entitled to deductions for expenses incurred in relation to rental properties where the property is held for the purpose of producing assessable income, either being rented or available for rent. Where the property is held for the purpose of producing assessable income, a taxpayer is entitled to deductions for expenses incurred. Some expenses are deductible in the year they are incurred (under sections 8-1, or 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)) while others are deductible over a number of income years (under divisions 40 and 43 of the ITAA 1997). Where a property is not actually being rented it will be considered to be 'held' for the purpose of producing assessable income where it is genuinely available for rent as evidenced by the taxpayer undertaking active and bona fide efforts to let the property at a commercial rental. This would include such activities as listing the property with a real estate agent, placing advertisements in newspapers and not restricting availability (for example, by making the property unavailable for rent during holiday periods) to ensure your private use and enjoyment of the property In your case you entered in to a residential property management agreement with a real estate agent. Despite your efforts to obtain tenants you were unable to find any. This was largely due to the difficulty in getting tenants in the area. It is considered that a genuine and bona fide effort was being made to rent the property. As the property was genuinely available for rent, the expenses associated with the property maybe an allowable deduction. 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 income. Those expenses listed under the second question are not capital, private or domestic or relate to the earning of exempt income, therefore you are entitled to a deduction under section 8-1 of the ITAA 1997 for these expenses. Division 40 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose. A depreciating asset is an asset that has a limited effective life and can be expected to decline in value over the time it is used. Division 43 of the ITAA 1997 provides a deduction for capital works. Capital works includes buildings and structural improvements, and also extensions, alterations or improvements to buildings and structural improvements where a residential property is used for income producing purposes. The expenses listed under the third question are either for depreciable assets or capital works, therefore you are entitled to a deduction under Division 40 or 43 for these expenses.

Relevant facts: You purchased an investment property with the intention of renting the property as soon as possible. | You entered into a Residential Property Management Agreement with an estate Agent. You have renewed this agreement. | Due to the economic conditions in the area it has been difficult for all investors to fill investment properties in the area as there are a large number of properties on the rental market with a small amount of people looking to rent. | You have never been able to rent your property. While it has been vacant, you have taken to opportunity to progressively improve the property. | You wish to claim an immediate deduction for the following expenses: | • Emergency Services Levy | You wish to claim a deduction for capital works or capital allowances for the following expenses: | You have also incurred minor equipment expenses associated with capital works.