Private ruling: Rental Property Expenses
Date of advice: 24 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for your portion of car hire expenses incurred to inspect your rental properties? | A1: Yes, however where there is also a private purpose for the travel you may be required to apportion your expenses.

Relevant facts and circumstances: You co-own two rental properties with your spouse. One property is in XX and the second is in XX. You fly into the closest airport where you hired a rental car to drive to both properties to inspect them. You incurred expenses in hiring the rental car.

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

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 income. Rental property expenses are deductible under section 8-1 of the ITAA 1997 for the period the property is rented or is available for rent. Generally, the cost of travel to inspect or maintain a rental property is an allowable deduction under section 8-1 of the ITAA 1997 as it has been incurred in connection with gaining income from the investment property. In your case, you incurred expenses in hiring a car to inspect your rental properties. Accordingly, you are entitled to a deduction for your portion of the expenses under section 8-1 of the ITAA 1997. | Detailed Reasoning - Apportionment of travel expenses: Where travel related to your rental property is combined with a holiday or other private activities, you may need to apportion the expenses. If you travel to inspect your rental property and combine this with a holiday, you need to take into account the reasons for your trip. If the main purpose of your trip is to have a holiday and the inspection of the property is incidental to that main purpose, you cannot claim a deduction for the cost of the travel. However, you may be able to claim local expenses directly related to the property inspection and a proportion of accommodation expenses. Example: The Hitchmans owned a rental property in a resort town on the north coast of Queensland. They spent $1,000 on airfares and $1,500 on accommodation when they travelled from their home in Perth to the resort town, mainly for the purpose of holidaying, but also to inspect the property. They also spent $50 on taxi fares for the return trip from the hotel to the rental property. The Hitchmans spent one day on matters relating to the rental property and nine days swimming and sightseeing. No deduction can be claimed for any part of the $1,000 airfares. The Hitchmans can claim a deduction for the $50 taxi fare. A deduction for 10% of the accommodation expenses (10% of $1,500 = $150) would be considered reasonable in the circumstances. The total travel expenses the Hitchmans can claim are therefore $200 ($50 taxi fare plus $150 accommodation). Accordingly, Mr and Mrs Hitchman can each claim a deduction of $100. Further information can be found in the Rental properties guide (NAT 1729) which is available on our website, www.ato.gov.au .