Private ruling: Rental property deductions
Date of advice: 5 April 2024
Published: 20 May 2024
Ruling period: XX/XX/20XX
Date scheme commenced: XX/XX/20XX

Ruling: Q1: Can you claim deductions for rental expenses you incurred including interest, rates, water and decline in value to the extent that the property was genuinely available for rent? | A1: Yes. You can claim deductions for interest, rates, water and decline in value to the extent that the property was genuinely available for rent during the income year. Rental expenses are deductible to the extent that they are incurred for the purpose of producing rental income. Expenses may be deductible for periods when the property is not rented out, providing the property is genuinely available for rent - that is: • the property is advertised in ways which give it broad exposure to potential tenants, and • having regard to all the circumstances, tenants are reasonably likely to rent it. In your case, we consider the property was genuinely available for rent from XX 20XX, when you entered into a management agreement. | Q2: Can you claim a deduction for legal expenses you incurred to defend yourself in court against the real estate agent? | A2: Yes. You incurred the legal expenses in your capacity as owner of the rental property. The expenses arose out of you terminating your management agreement with the real estate agent. There is a clear connection between your legal expenses and your pursuit of finding a suitable tenant such that the expenses are incidental and relevant to the generation of your assessable rental income. There was no enduring benefit produced by the expenditure and therefore it is appropriate to treat the expense as being on revenue account. Therefore, you are entitled to a deduction under section 8-1 of the ITAA 1997 for legal expenses that you have incurred in defending the damages claim.

Relevant facts and circumstances: You purchased a property in 20XX. You resided in the property until XX 20XX. You moved out of the property in anticipation of a tenant becoming available and resided with a friend. On XX/XX/20XX, you entered into a management agreement with the real estate agent A. On XX/XX/20XX, the real estate agent A listed the property for rent. The lease agreement had an indicative value of weekly rent being around $X, XXX. This amount was within market rental amounts for the location and lease conditions. The lease agreement had a standard termination clause of 28 days set out in the contract. On XX/XX/20XX, you officially terminated your contract with real estate agent A because of their conduct and privacy breaches. You were required by law to give 28 days' notice between agents. On XX/XX/20XX, you commenced legal action against real estate agent A to defend yourself regarding your termination of the contract. On XX/XX/20XX, you signed a property management authority with real estate agent B. On XX/XX/20XX, real estate agent B listed the property. The property required a six-week minimum bond of $X, XXX to $XX, XXX On XX/XX/20XX, you secured a tenant with a company with a start date of XX/XX/20XX. You did not receive rental income for the 20XX financial year as the tenant did not agree to the tenancy start date prior to XX/XX/20XX You incurred rental expenses including interest, rates, water and decline in value for the 20XX income year and legal expenses to defend yourself against real estate agent B.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 25-25 | Income Tax Assessment Act 1997 section 40-25