Private ruling: Rental property deductions
Date of advice: 19 December 2017
Published: May 2018
Ruling period: Year ending 30 June 2018 | Year ending 30 June 2017 | Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are the expenses you incur for your rental property while it is currently inhabitable due to building defects, deductable? | A1: Yes. 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. Expenses incurred by a taxpayer such as agents' fees, insurance, council and water rates, interest expense, etc. for the purpose of deriving assessable rental income are deductible.

Relevant facts and circumstances: You own a rental property. In XXXX the building was deemed defective and inhabitable due to defective work performed by the builder. Due to the building defects the tenant vacated the unit and it is no longer rented. The Strata Management Company commenced legal proceedings to determine if the builder is liable for the defects. In XXXX a ruling was handed down and a rectification order was issued. To date these rectifications have not been completed. During this period the property has continued to be managed by XXXX Real Estate. Expenses are continuing to be incurred and paid for the property such as interest, strata management fees, insurance and rates. There has been no compensation for loss of rental income while it is has not been leased due to building defects.

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