Private ruling: Rental property deductions
Date of advice: 30 June 2016
Published: August 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Questions and Answers | 1. Are you entitled to a deduction for rental expenses incurred in relation to the period date A to date B when your property was available for rent, even though you received no rental income? | Yes | 1(a). Are you entitled to a rental deduction for mortgage and investment loan repayments? | No | 1(b). Are you entitled to a rental deduction for a proportion of the interest on loans used to purchase your property? | Yes | 1(c). Are you entitled to a rental deduction for real estate agent fees, sales and advertisement fees in connection with buying and selling the property? | No | 1(d). Are you entitled to a deduction for real estate agent fees in connection with the renting of the property as well as rental expenses for the period of rental? | Yes | 2. Can you claim a capital loss on the sale of your property in the 2015-16 income year? | No | 3. Can you carry forward the capital loss on the sale of your property and offset it against a capital gain you may make in future? | Yes | 4. In calculating the capital loss, do you include in the reduced cost base the cost of the property, real estate agent fees, sales and advertisement fees in connection with buying and selling the property? | Yes

Relevant facts and circumstances: You signed a contract to build a house for yourself for residential purposes in the 2013-14 income year. The purchase price of the property (home and land package) was approximately $X. The house was completed in the 2015-16 income year and you began painting the walls in preparation to move in fully. Immediately after your property was ready for you to move in, you had to relocate to another state for work. On date A you signed a management authority with Elders Real Estate to manage your property and find a tenant. You changed your loan from a home loan to investment loan. The property was on the rental market from date A to date B in the 2015-16 income year. Due to the economic downturn during the period your agent was unable to find a tenant for the entire period. You sold the property on date C in the 2015-16 income year and made a loss. You did not make a capital gain in the 2015-16 income year.


Reasons for decision: Detailed Reasoning - Rental deductions: Expenses relating to a rental property are allowable as deductions, but only for the period the property was rented or available for rent, for example, advertised for rent. Examples of expenses may include: ● Real estate agent fees for rental purposes ● Advertising for tenants ● Cleaning ● Council rates ● Gardening ● Insurance ● Interest on loan As your property was available for rent for the period date A to date B, you can claim a deduction for the rental expenses you incurred during this period. Some of your expenses such as council rates, insurance and interest on loan will need to be apportioned as your property was not rented out for the full 2015-16 income year. Note that acquisition and disposal costs of the property cannot be claimed as rental deductions. | Detailed Reasoning - Capital loss: A capital gain or capital loss can only arise if a capital gains tax event happens to an asset in which you have an ownership interest. A CGT asset includes any kind of property. The property which you bought and sold is a CGT asset and when you sold the property, CGT event A1 happened. As you sold your property for less than the amount you paid to acquire it, you made a capital loss. There is a difference between calculating a capital gain and calculating a capital loss. A capital loss is calculated by taking difference between the capital proceeds (the amount you received on sale) and the reduced cost base. | Detailed Reasoning - Reduced cost base: There are five elements to consider in working out your reduced cost base: 1. Money or property given for the asset. 2. Incidental costs of acquiring and disposing of the asset (eg real estate agent fees, legal adviser fees, costs of transfer, stamp duty, costs of advertising, cost of conveyancing, borrowing expenses). 3. Balancing adjustment amount, that is, any amount that is assessable because of a balancing adjustment for the asset. 4. Capital costs to increase or preserve the value of your asset or install or move it. 5. Capital costs of preserving or defending you title or rights to your asset. A capital loss can be used to reduce a capital gain only. It cannot be used to reduce other income like a rental loss. As you did not have a capital gain in the 2015-16 income year, you cannot claim the capital loss on the sale of your property in your 2015-16 income year. The capital loss can be carried forward indefinitely until you make a capital gain. | Detailed Reasoning - Conclusion: You are entitled to claim rental expenses as a result of having your property available for rent for the period 4 September 2015 to 29 December 2015. A capital loss can only be offset against capital gains. As you did not make a capital gain in the 2015-16 income year, you cannot claim a capital loss on the sale of your property in the 2015-16 income year.