Private ruling: Deduction-rental property expense
Published: November 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for a portion of the rental property expenses when the property is not available for rent? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5. | Income Tax Assessment Act 1997 section 8-1.

Reasons for decision: Summary: Rental income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). 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. In order to be eligible to claim expenses that relate to your rental property, you must be holding the property or using part of the property for the purpose of gaining or producing assessable income. Generally, a property is considered to be held for the purpose of gaining or producing assessable income where it is either tenanted, listed with an agent as being available for tenancy or where the owner is making active and bona fide efforts in relation to the letting of the property. In determining whether an owner is making sufficient efforts or steps in relation to the letting of the property is a question of fact to be decided in each case The following cases considered the question of what constitutes active and bona fide efforts to let a property. Inglis & Anor v. FC of T 87 ATC 2037 ( Inglis & Anor's Case ) the taxpayer owned a house at a beach resort on the New South Wales coast. The property was mainly let during school holidays and at Easter. The house had been let for approximately 12 weeks during the 1983 year, 5 weeks during the 1984 year, 11 weeks during the 1985 year and 6 weeks during the 1986 year. The property had been advertised by word of mouth and in the Canberra Times . The Administrative Appeals Tribunal (AAT) held that the taxpayer was entitled to deductions for expenses based only on the period the property was let. In reaching this decision, Deputy President R K Todd stated (at page 2049): While it is true that the property was vacant and theoretically available at all times, it cannot be said to have been truly available for letting unless some perceptible effort was being made to obtain tenants in respect of those times, or at least some step taken to draw its availability to the attention of the public, the classic method of so doing being the placing of it with an agent. The sufficiency of the steps taken is a question of fact to be decided in each case, but in this case, considering the irregular advertising and the restriction of the opportunity of renting to Canberrans, there has in my view been insufficient done for it to be able to be said that the property was available for letting for periods adequate to support the claims made. In Case V133 88 ATC 847 ( Case V133 ) The taxpayers, a husband and wife, owned a holiday home in the Port Stephens area. They had no problems letting the house over Christmas and New Year. However, there was only limited interest at other times of the year. During the 1983 and 1984 years, the taxpayers had occupied the house on a number of nights and claimed that for the balance of the year the house was available for letting. The AAT held that the taxpayers were entitled to deductions for expenses based on the period the property was let and available for letting. In reaching this decision, Senior Member B J McMahon stated (at page 848): A selection of advertisements and promotions was tendered in evidence. These included display advertisements inserted in newspapers, such as The Land and Open Road , as well as in the daily newspapers and in specialised journals, such as Qantas News . There were also tendered letters which the husband had written to companies associated with the proposed aluminium and power developments in an endeavour to interest those companies in taking block bookings for their employees. The property was also listed with several real estate agents. Over the period of two years after the house was built, evidence was given that approximately $2,000 had been spent in advertising. In your case, we acknowledge that you may have undertaken some advertising either in the newspapers, the internet or by word of mouth during the financial year. Your situation can be distinguished from Case V133 in that you have not retained any evidence of any kind such as the advertisements to support your contention that the property was being advertised for rent during the financial year. It is considered that you have not made active and bona fide efforts to rent out the room of the property during the financial year. During this period the means of advertising you adopted meant that the room of the property was made available for rent only to a small section of the general public as in Inglis & Anor's Case and not to a large section of the general public as in Case V133 . Therefore as the property is not been made available for rent any expenses incurred in relation to the property are not deductible under section 8-1 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | You advertised the property for rent through the following sources: | You also contacted friends and relatives to advertise the property. | You do not have any receipts or copies of the advertisements in relation to the renting of the property. | You estimate the commercial rental rate for the property. | You did not receive rental income during the financial year.