Private ruling: Rental property expenses
Date of advice: 12 February 2016
Published: April 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2015

Ruling: Q1: Can deductions for the full amount of losses related to your rental property be claimed when it is rented out at less than commercial rates? | A1: No.

Relevant facts and circumstances: You have an investment property that is currently rented out at the market rate. You currently claim deductions for losses associated with this property. You would now like to rent out the property to a registered charity organisation at a reduced rate of only 10% of its market rate.

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

Reasons for decision: Summary: Generally, rental property expenses are deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to the extent that they are incurred in gaining or producing assessable income except to the extent that the expense is of a capital, private or domestic nature. Taxation Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases, discusses how section 8-1 of the ITAA 1997 applies to non-economic rental arrangements. It states at paragraph 14 that while less than commercial rent can represent assessable income, it would not necessarily follow that, losses and outgoings in relation to this are wholly deductible. The normal commercial practice would be that a property is rented primarily for profit. Because you propose to rent your property out at less than its commercial value, the primary purpose of the property would not be to earn assessable income. In this case, tax deductions for losses and outgoings in connection with the property will be allowed only up to the amount of rent received. Therefore, you would only be entitled to claim a deduction for rental expenses incurred up to the amount of rental income received.