Private ruling: Rental deductions
Published: January 2014
Ruling period: Income year ended 30 June 2014 | Income year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for the full amount of expenses attributable to the property? | A1: No | Q2: Are you entitled to a deduction for the amount of expenses attributable to the property equal to the amount of rent received? | A2: Yes

Relevant facts and circumstances: You purchased a property on X which settled on X. You consulted the major real estate agent in the area to list the property for holiday accommodation. The agent advised that they were not prepared to list the property because it did not have sea frontage and the only period that they could see that it could be let out was over the Christmas period. The agent did not consider the amount of management fees that would be payable to them over the Christmas period would be such that they would be prepared to list the property. The property was listed as available for rent on a Facebook page you created for the period between X and X. The property was rented out on XX occasions for holiday accommodation. You derived $X in rental income from the property during the period. You incurred $X worth of expenses during the period. You only occupied the property during the period when you could not rent it out. You have subsequently decided to live in the property as of X.

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

Reasons for decision: Summary: Generally where a taxpayer rents out their property the amounts received will be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Expenses incurred in relation to those properties will be deductible under section 8-1 of the ITAA 1997 to the extent that they are incurred in producing assessable income and not capital or private in nature. Taxation Ruling IT 2167 provides the Commissioner's view on the tax consequences of non-traditional rental arrangements such as holiday homes. It provides that minimal amounts received from friends and relatives are not considered to be assessable income as they are private and domestic in nature. While on the other hand the rent received from the commercial letting of the properties, at a commercial rental, is clearly assessable income. The facts of each individual case will determine to what extent losses and outgoings incurred in connection with any such property will be deductible under section 8-1 of the ITAA 1997. In Case No. P116 , 82 ATC 590: Case No. 49, 26 CTBR (NS) 372 a holiday home was let for 16 days during the year of income, occupied by the owners for 107 days and vacant for the balance of the year. The Taxation Board of Review apportioned the losses and outgoings attributable to the property on a time basis and allowed a deduction only for the proportion the property was let out, that is 4.4%. Paragraph 25 of IT 2167 provides that in making the above apportionment of expenses, time where the property was not let out but made available for rent will only be taken into account where it is established that active and bona fide efforts to let the property at a commercial rental were made during the relevant period. We do not consider that listing the property on a Facebook page constitutes a bona fide attempt to rent the property out on a commercial basis. The nature of Facebook provides that the property would only have been advertised to a limited audience of primarily friends and family. In addition to the method used to advertise the property, the following facts are also considered relevant in deciding the extent to which a deduction is allowable: • You were advised by the major real estate agent in the area prior to settlement that they did not consider the property to be a commercially viable rental property. Nevertheless, you continued with the purchase of the property which indicates that you had another purpose in purchasing the property other than to only earn assessable income. • The expenses incurred in relation to the property exceeded the income generated by a factor of 6 which supports the real estate agent's view that it was not a commercially viable rental property. • Approximately a year after you purchased the property, you decided to move into it as your main residence. Having regard to all the information provided, the Commissioner considers that the allowable deduction should be limited to the amount of rent received.