Private ruling: deductions for expenses
Date of advice: 14 March 2017
Published: August 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Question and answer | Are you entitled to deductions in relation to your Air B&B property? | Yes.

Relevant facts and circumstances: You have a property which is rented out. The property is available for rent 365 days of the year. You have incurred expenses relating to the provision of tea and coffee, washing of linen and 2 beds. The property is XXX from your home and you wish to claim a deduction for the kilometres travelled and tolls.

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

Reasons for decision: Summary: 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. Tea and coffee You supply tea and coffee for your guests. This is an allowable deduction. Travel expenses Generally you can claim a deduction for the cost of travel you incur to inspect, or maintain rental properties or collect rent. You can claim travel expenses for: ● preparing the property for new tenants (except for the first tenants) ● inspecting the property during or at the end of tenancy ● undertaking repairs, where those repairs are because of damage or wear and tear incurred while you rented out the property ● maintaining the property, such as cleaning and gardening, while it is rented or available for rent ● collecting the rent ● visiting your agent to discuss your rental property. You cannot claim travel expenses: ● for your personal use of the property or for purely private purposes ● to carry out general maintenance of the property while it is not genuinely available for rent ● to undertake repairs, where those repairs are not because of damage or wear and tear incurred while you rented out the property (for example, if you travel to undertake initial repairs before you rent the property for the first time, it is capital expenses and may be included as part of the cost base for capital gains tax calculation when the property is being sold later). Where your travel expenses are partly for private purposes and partly related to the rental property, you can only claim the amount relating to the rental property. Car expenses If you use your own car to travel to inspect or maintain your rental property or to collect rent, you can claim a travel expense deduction. You cannot claim motor vehicle expenses for travel that is incidental to the main purpose of the trip. For example, you cannot claim travel expenses because you drive past the property to 'keep an eye on things' on your way to or from work. If we select your travel expense claim for review or audit, you must be able to show your reason for visiting the rental property. Working out car expenses Since 1 July 2015, the two methods available to work out car expenses are: ● cents per kilometer method ● logbook. Example: Claimable car expenses Claire inspects her rental property three months after the tenants move in. she also makes a number of visits to the property during the year to carry out minor repairs. Claire travels 162 kilometers during the course of these visits in her car. Claire works out her car expenses using the cents per kilometer method and claims the following deduction: Distance travelled x rate per kilometer = deductible amount 162 km x 66 cents per kilometer = $107 Claire can only claim this deduction for travel expenses associated with her rental property - she cannot also claim the expense at the work-related car expenses label (D1) on her tax return. If she wants to make a separate work-related car expenses claim, the total distance she travelled on income-producing activities (including rental property travel expenses) cannot exceed 5,000 kilometers when using the cents per kilometer method. You are entitled to a deduction for travel to and from your rental property using the cents per kilometer method and for the tolls. Linen and beds You may be able to claim an outright deduction for the linen and the beds or you may be able to claim depreciation over a number of years depending on the cost of the linen and beds. Division 40 of the ITAA 1997 provides that a taxpayer may be entitled to a deduction for the decline in value of a depreciating asset that is used during the income year for a taxable purpose. Taxable purpose includes the purpose of producing assessable income under subsection 40-25(7) of the ITAA 1997. Section 40-30 of the ITAA 1997 provides a definition of depreciating assets. They are assets that have a limited effective life and can reasonably be expected to decline in value over the time it is used. Subsection 40-80(2) of the ITAA 1997 provides that if a depreciating asset costs less than $300 an immediate deduction may be claimed to the extent that it is used for a taxable purpose during the income year in which the deduction is available. An immediate deduction is available if all of the following tests are met in relation to the asset: ● the cost does not exceed $300, and ● you use the item predominantly for the purpose of producing assessable income, and ● the item is not part of a set that you purchased in that income year where the total cost of the set exceeds $300, and ● the total cost of the item and any other identical or substantially identical item that you purchase in that income year does not exceed $300. You are entitled to an immediate deduction for the linen and beds if they were purchased for $300 or less. If they exceeded $300 you can claim depreciation over the life of the linen and beds. TR 2016/1 - Income tax: effective life of depreciating assets (applicable from 1 July 2016) sets out a list of depreciating assets for guest accommodation and lists the effective life for each asset.