It is possible to claim a deduction for specific expenses that are incurred during the period in which your property is rented out or is legitimately available for rent. It is important to note that expenses of a capital or private nature are not claimable. However, it may be possible to claim decline in value deductions or capital works deductions for specific capital expenditure, or include certain capital costs in the cost base of the property for CGT purposes.
There exist three distinct categories of rental expenses, namely those that pertain to:
expenses where it is not possible to take deductions.
expenses where it is possible to claim an immediate deduction in the income year when the expense is incurred.
expenses where deductions can be claimed over multiple income years.
It is advisable to verify if a contractor possesses an Australian business number (ABN) before remunerating them for services rendered on your rental property. In the event that an ABN is not furnished, it may be necessary to retain 47% of the payment and remit it to the ATO.
Failure to withhold payments to a contractor who has not furnished an Australian Business Number (ABN) may render you ineligible to claim a deduction for those expenses.
For further details, kindly refer to other articles on the elimination of tax deductibility for non-compliant payments.
Rental Property Expenses that are not eligible for deduction.
Non-deductible expenses include:
The costs associated with acquiring and disposing of the property, expenses that are not borne by you, such as water or electricity usage charges incurred by your tenants, and expenses related to situations where your property, including your holiday home, was not genuinely available for rent.
Non-rental related expenses include costs incurred for personal use of a vacation home that is rented out for a portion of the year, as well as expenses related to maintaining a non-income producing property that is utilised as collateral for an investment loan.
Expenses associated with maintaining unoccupied land and the expenses incurred in relation to the purchase of specific used assets that have undergone depreciation.
Deductible expenses do not include certain expenditures, such as:
conduct a property inspection prior to purchasing it, or traveling do so.
expenses that may be incurred when transferring assets between rental properties before renting.
rental seminars are available to assist in identifying investment opportunities in rental properties.
Expenses related to travel.
Deductions for travel expenses related to residential rental properties are only applicable to individuals who utilise the property for conducting a business operation (which may include leasing rental properties).
The expenses related to travel comprise the expenditures associated with travel for the purpose of property inspection, maintenance, or rent collection, including associated meals and accommodations. In the event that your travel expenses are also associated with another activity that generates income, it will be necessary to allocate the expenses accordingly. Please refer to the document titled "Apportionment of Travel Expenses" for further details.
Deductions for the decline in value of specific second-hand depreciating assets against your residential rental property income are not applicable unless you utilise the property for business purposes (which includes letting rental properties) or you are an excluded entity. For further details, kindly refer to the Limit on Deductions for Decline in Value of Second-hand Depreciating Assets.
The costs associated with acquiring and disposing of assets.
Deductions for expenses related to the acquisition or disposal of rental property are not permissible. These expenses include:
The acquisition cost of the real estate property and the charges associated with bank guarantees in place of deposits.
advertising expenses fees of a buyer’s agent you engage to find you a suitable rental property to purchase, including where the agent recommends a property manager free of charge as an optional or
supplementary service stamp duty on the transfer of the property (but not stamp duty on a lease of property;
However, these costs may form part of the cost base of the property for CGT purposes.
Deductions related to vacant land.
The deductions pertaining to expenses incurred for holding vacant land have been restricted. This applies to land you held both before and from 1 July 2019. The land in question is deemed vacant if, at the time the expense was incurred, it met the criteria for being classified as such.
The property is deemed vacant if it either lacked a significant and enduring edifice, or possessed a significant and enduring edifice that constituted residential premises but was not legally fit for habitation, or was not leased or offered for lease.
It is possible to deduct the holding costs of vacant land if:
The property is under the ownership of a "excluded entity," which can be a corporate tax entity, superannuation plan (excluding self-managed superannuation funds), managed investment trust, public unit trust, or a unit trust or partnership consisting solely of corporate tax entities, superannuation plans, managed investment trusts, or public unit trusts.
The land is utilised for conducting business by yourself, your affiliate, or an affiliated entity. It may also be used by your spouse or child under 18 years old, as well as an entity associated with you.
If you, as an affiliate (as mentioned above), your spouse or child, or an entity associated with you, are engaged in a primary production business and have leased or rented the land to another entity, or if you have made the land available to a business for use in that business at arm's length, and a significant and permanent structure was present on the land but an extraordinary circumstance has resulted in the land becoming vacant.