Private ruling: Rental deductions
Date of advice: 20 February 2020
Published: April 2020
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Am I eligible to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 ( ITAA 1997 ) for owner's corporation fees, water charges, council rates and landlordinsurance incurred for a rental propertyin the 2018- 2019 income year? | A1: Yes. 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, or relate to the earning of exempt income. It is not necessary that expenditure should produce assessable income in the same year in which the expenditure is incurred. TR 2004/4 - Taxation Ruling 2004/4 Income Tax: deductions for interest incurred prior to the commencement of, or following the cessation of relevant income earning activities (TR 2004/4 ) considered the decision Steele v Federal Commissioner of Taxation (1999) 197 CLR 459 ( Steele's case ). Although Steele's case related to the deductibility of interest expenses, the same principles can be applied to other types of expenditure including council rates. Steele's case concluded that interest incurred in a period prior to the derivation of relevant assessable income will be incurred in gaining or producing the assessable income in the following circumstances: a) The interest is not incurred too soon, is not preliminary to the income earning activities, and is not a prelude to those activities b) The interest is not private or domestic c) The period of interest outgoings prior to the derivation of relevant assessable income is not so long, taking into account the kind of income earning activities involved, that the necessary connection between outgoings and assessable income is lost, d) The interest is incurred with one end in view, the gaining or producing of assessable income, and e) Continuing efforts are undertaken in pursuit of that end Expenses relating to a rental property are allowable as deductions, but only for the period the property was rented or genuinely available for rent. Based on information provided, your rental property was genuinely available for rent at the time the expenses were incurred. You are therefore able to claim the owner's corporation fees, water charges, council rates and landlord insurance incurred for a rental property in the 2018-19 year. | Q2: Am I able to claim deductions for land tax, council rates, capital allowances (depreciation on plant) and capital works deductions (special building write-off) for a property at XXXX for the income year ending 30 June 2019? | A2: No. You are not eligible to claim an immediate deduction for land tax and council rates. To be able to claim an immediate deduction for expenses incurred in relation to a rental property, the property must be either: genuinely available for rent or actually rented out. In this situation, the property was neither available for rent nor actually rented out during the period between July and August 2018 when the land tax and council rates amounts were incurred and paid. The expenses are therefore not eligible for an immediate deduction. You are able to claim deductions for capital allowances (depreciation on plant) and capital works deductions (special building write-off) during the time a property is rented out or genuinely available for rent. As Property 2 ceased to be available for rent from early June 2018, you are unable to claim deductions from this time onwards.

Relevant facts and circumstances: You own a property at XXXX (Property 1). You finished renovating the property in June 2019. This property was your former residence Property 1 was available for rent from late June 2019. Property 1 was rented out from on or about mid July 2019. In the income year ending 30 June 2019 and after Property 1 was available for rent, you pre-paid council rates, water and owner's corporation fees. You also paid landlord insurance for Property 1 in the income year ending 30 June 2019 and after the property was available for rent. All of these amounts were paid in the income year ending 30 June 2019. You also owned a property at XXXX (Property 2). This property was rented until late June 2018. In late August 2018, you accepted a contract note for the sale of Property 2. Settlement occurred on XXXX. You paid council rates of $XXX in August 2018. You also paid land tax of $XXX in August 2018. Property 2 was rented out for the majority of the income year ending 30 June 2018. It was not rented out or available for rent for any of the income year ending 30 June 2019. Your individual income tax return for the income year ending 30 June 2019 has been prepared but not yet lodged.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subsection 110-25(4) | Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 Division 43