Private ruling: Rental property deduction
Date of advice: 15 December 2017
Published: May 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you, as the sole owner of Unit 1, entitled to a deduction for the water availability charges? | A1: Yes | Q2: Are you, as a co-owner of Unit 2, entitled to a deduction for the water availability charges? | A2: No | Q3: Are you, as the sole owner of Unit 1, entitled to a deduction for an appropriate portion of the water usage charges? | A3: Yes

Relevant facts and circumstances: You are the Strata Manager of Strata Plan comprising Unit 1 and Unit 2. Unit 1 is owned by you and is rented. Unit 2 is jointly owned by you and your spouse and is your residence. The Local Council (the Council) supplies water to the property through one pipe. Only one water meter is installed to record the water usage for the two units on the property. The Council makes two water availability charges notices, one each to Units 1 and 2. The Council makes one water usage charges notice to the owners of Strata Plan.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(1) | Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: According to subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997), your assessable income includes the income you receive according to ordinary concepts, which is called ordinary income. Rent derived by the owner of property which is let to a tenant is income according to ordinary concepts and forms part of assessable income. Section 8-1 of the 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. Accordingly, you can claim a deduction for certain expenses you incur for the period your property is rented or is available for rent. However, you cannot claim expenses of a capital nature or private nature. Expenses for which you may be entitled to claim an immediate deduction include water charges. You can claim a deduction only if you actually incur them and they are not paid by the tenant. In your case, Unit 1 is owned by you and is rented. You are entitled to a deduction for the water availability charge. Unit 2 is jointly owned by you and your spouse and is your residence; you are not entitled to a deduction for the water availability charge as it is private and domestic in nature. With only one water meter to record the total water used for both Units, you are entitled to a deduction for the water usage of Unit 1. You should keep a record of the method you use to determine the portion of the water usage charge that relates to Unit 1.