Private ruling: Rental property expenses
Date of advice: 7 August 2017
Published: November 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: I July 2016

Ruling: Q1: Are you entitled to a deduction for your share of the online travel agents costs for your rental property? | A1: Yes. | Q2: Are you entitled to a deduction for your share of the WiFi and cable TV charges incurred for your rental property? | A2: Yes. | Q3: Are you entitled to a deduction for your share of the credit card charges for bookings for your rental property? | A3: Yes. | Q4: Are you entitled to a deduction for the full cost of the air-conditioner replaced in your rental property? | A4: No. | Q5: Are you entitled to a deduction for the decline in value for the air-conditioner replaced in your rental property? | A5: Yes. | Q6: Are you entitled to a deduction for your share of the water and electricity charges for your rental property? | A6: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 40-25

Reasons for decision: Summary: Allowable deductions 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. Advertising costs incurred to find tenants for a rental property is an allowable deduction. Credit card charges incurred in relation to bookings for your rental property are also an allowable deduction. The cost of WiFi, cable TV, water and electricity costs for your rental property are also an allowable deduction. However, an air-conditioner is regarded as a capital asset and therefore no outright deduction is allowed for replacing the air-conditioner in your unit. However a depreciation deduction is allowed as outlined below. In your case, your unit is managed by entity A. They collect the rental income/revenue on your behalf and pay for the associated expenses. The net profit is then paid to you. Many of the expenses paid on your behalf by the management company are an allowable deduction. However for capital costs such as your air-conditioner replacement, an outright deduction is not allowed in the 2016-17 income year. Therefore the net profit paid to you from the management company will not be your net rental income for taxation purposes. Your assessable rental income is your share of the gross revenue. Your share of the allowable deductions can then be claimed against your gross revenue/income. Depreciating assets Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose. The air-conditioner is regarded as a depreciating asset for Division 40 of the ITAA 1997 purposes. A deduction for its decline in value is an allowable deduction when it is used for income producing purposes. Please note as the air-conditioner is a capital item no deduction is allowed under section 8-1 of the ITAA 1997 or and as a repair under section 25-10 of the ITAA 1997. For information on how to calculate your allowable depreciation deduction, please refer to the Guide to depreciating assets 2017 on the Australian Taxation Office website www.ato.gov.au.

Relevant facts: You jointly own a unit in a complex. | Your unit is one of several managed by entity A. | The management company collects all revenue for the units and in a revenue sharing arrangement, pays expenses from this pool of monies then distributes the net to the management company and owners on a points entitlement basis. | The only accounts you receive from the interim management committee are the quarterly fees for service and sinking fund and monthly water and electricity consumption charges. | The management company pays for online travel agents for all the units. | An air-conditioner was replaced. | You have not stayed in the unit this year.