If you let a property–or part of a property–at less than normal commercial rates, this may limit the amount of deductions you can claim.
Example
Non-commercial rental
Mr and Mrs Hitchman were charging their previous Queensland tenants the normal commercial rate of rent –$180 per week rent. They allowed their son, Tim, to live in the property at a nominal rent of $40 per week. Tim lived in the property for four weeks. When he moved out, the Hitchmans advertised for tenants.
Although Tim was paying rent to the Hitchmans, the arrangement was not based on normal commercial rates. As a result, the Hitchmans cannot claim a deduction for the total rental property expenses for the period Tim was living in the property. Generally, a deduction can be claimed for rental property expenses up to the amount of rental income received from this type of non-commercial arrangement.
Assuming that during the four weeks of Tim's residence the Hitchmans incurred rental expenses of more than $160, these deductions would be limited to $160 in total –that is, $40 x 4 weeks.
If Tim had been living in the house rent free, the Hitchmans would not have been able to claim any deductions for the time he was living in the property.
For more information about non-commercial rental arrangements, see Taxation Ruling IT 2167 referred to above.
Please keep records of both income and expenses relating to your rental property for five years from the date you lodge your tax return.
For capital gains tax purposes you must start keeping records if you purchase or inherit property, receive property as part of a divorce settlement or as a gift, or make improvements to property. You must keep records relating to your ownership and all the costs of acquiring and disposing of property for five years from the date you dispose of it.
You must keep records which set out in English:
the date you acquired the asset
the date you disposed of the asset and anything received in exchange
the parties involved
any amount that would form part of the cost base of the asset. For more information about cost base, see the publication Guide to capital gains tax.
Do not send these records in with your tax return. Keep them in case the ATO asks to see them.
In the following example of a completed worksheet, some of the figures have been drawn from the examples in this publication. Others have been included for illustrative purposes.
Example
Rental property worksheet
$
Income
Rental income
8,500
Other rental related income
800
Gross rent
9,300
Expenses
Advertising for tenants
48
Body corporate fees and charges
500
Borrowing expenses
260
Cleaning
100
Council rates
700
Deductions for decline in value (depreciation)
597
Gardening/ lawn mowing*
350
Insurance*
495
Interest on loan(s)
11,475
Land tax
200
Legal expenses
150
Pest control
50
Property agent fees/ commission
800
Repairs and maintenance
1,000
Capital works deductions (formerly special building write-off)
2,745
Stationery, telephone and postage
80
Travel expenses
436
Water charges
350
Sundry rental expenses
95
Total expenses
20,431
Net rental loss ($20,431 –$9,300)
11,131
* You can't claim for these items if the expenditure is already included in body corporate fees and charges.
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