In Australia, you can generally claim deductions for expenses related to your investment property against the rental income you receive.
You can claim a deduction for your rental property-related expenses for the period your property is rented or is genuinely available for rent.
If you use your property for both private and income-producing purposes, you can only claim a deduction for the portion of any expenses that relate to the income-producing use.
Property rented or genuinely available for rent
You can claim a deduction for rental expenses you incur, if you use your property for income-producing purposes.
You can only claim a portion of your expenses if any of the following apply to you:
– Your property is only genuinely available for rent for part of the year.
– Your property is used for private purposes for part of the year.
– Only part of your property is used to earn rent.
– You rent your property at non-commercial rates.
– Your investment loan is partially used for private purposes.
1. When you can claim
You can claim expenses for periods when your property is either:
rented out not rented out but is genuinely available for rent, which means the property is advertised, giving it broad exposure to potential tenants considering all the circumstances, tenants are reasonably likely to rent the property.
If these don’t apply, it’s likely that you can’t claim all your expenses as you don’t have a genuine intention to earn income from your property.
2. Factors that indicate genuine availability
Property is genuinely available for rent when it is:
– advertised in ways that give it broad exposure to potential tenants
– having regard to all the circumstances, tenants are reasonably likely to rent it.
Factors that may indicate a property isn’t genuinely available for rent include:
– you advertise in ways that limit your exposure to potential tenants – for example, if you only advertise
— at your workplace, or by word of mouth
— outside holiday periods, so it is less likely to be rented out
– the location, condition of the property, or accessibility of the property means it is unlikely tenants will seek to rent it
– you place unreasonable or stringent conditions on renting out the property that restricts the likelihood of the property being rented out, such as
— setting the rent above the rate of comparable properties in the area
— placing a combination of restrictions on renting out the property, such as requiring prospective tenants to provide references for short holiday stays and having conditions like no children or no pets
– you refuse to rent out the property to interested people but you don’t give adequate reasons.
All or part of your property is used to earn rent
If only part of your property is used to earn rent, you can claim only that part of your expenses that relates to the rental income. As a general guide, apportion your expenses on a floor-area basis – that is, based on the area solely occupied by the tenant, together with a reasonable figure for their access to the general living areas, including garage and outdoor areas if applicable.
Property available for part-year rental
If your property is only available to rent for part of the year, you can’t claim a deduction for the portion of any expenses that relates to your private use.
For example, if you have a holiday home or time-share unit, you can’t claim a deduction for any expenses related to those periods when you, your friends or your family used the home or unit for private purposes.
You may need to decide which expenditure is private in nature. For example, council rates paid for a full year would need to be apportioned based on the total time the property was rented out and genuinely available for rent during the year as a proportion of the total year.
However, it may not be appropriate to apportion some of your expenses on the same basis. For example, expenses that relate solely to the renting of your property are fully deductible and you would not apportion them based on the time the property was rented out. Such costs might include:
– real estate agents commissions
– costs of advertising for tenants
– phone calls you make to a tradesperson to fix damage caused by a tenant
– the cost of removing rubbish left by tenants.