Private ruling: Rental property deductions
Published: December 2011
Ruling period: Year ending 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to claim a deduction for electricity, gas and travel expenses incurred for your rental property before it was rented out? | A1: No

Relevant facts and circumstances: You own a property which was your main residence for many years. You moved out and decided to rent it out. The property was renovated and modernised to make it suitable for rent. The work was carried out over a period of time in 2009 and 2010. You incurred costs for electricity, gas and travel during the renovation period. The electricity and gas remained connected to enable the renovation work to be carried out. You travelled to the property to carry out some work yourself and to provide access for tradesmen. A real estate agent was engaged in 2010. The property was tenanted from late in 2010.

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. Expenses incurred on a rental property that produces assessable income may be deductible under section 8-1, and certain expenses may be deductible prior to the property being available for rent. These include holding costs such as local council, water and sewage rates and land taxes. Other types of expenditure, including capital works, are not deductible. Capital expenditure includes renovations, substantial improvements, alterations and modernisations. In your case, you undertook renovations and substantial improvements to your property to make it suitable to rent out. This work is capital in nature and the costs of carrying out the work are not deductible. Any costs related to capital works are also capital in nature and not deductible. You incurred costs for electricity, gas and travel, which were only incurred to allow the capital works to be carried out. These costs are capital costs and are not deductible under section 8-1 of the ITAA 1997.

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