• Rental properties 2016

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    Introduction

    Rental properties 2016 will help you, as an owner of rental property in Australia, determine:

    • which rental income is assessable for tax purposes
    • which expenses are allowable deductions
    • which records you need to keep
    • what you need to know when you sell your rental property.

    Many, but not all, of the expenses associated with rental properties will be deductible. This guide explains:

    • how to apportion your expenses if only part of them are tax deductible
    • what expenses are not deductible
    • when you can claim those expenses that are deductible    
      • some you can claim in the tax return for the income year in which you spent the money
      • others must be claimed over a number of years (including decline in value of depreciating assets and capital works expenses).

    The examples given in this publication featuring Mr and Mrs Hitchman are based on the assumption that the Hitchmans own their rental properties as joint tenants who are not carrying on a rental property business.

    When you own a rental property, you may also need to know about capital gains tax (CGT), goods and services tax (GST), negative gearing and pay as you go (PAYG) instalments.

    Tax and natural disasters

    We have special arrangements for people affected by natural disasters such as a cyclone, flood or fire occurring during the financial year. For more information see Dealing with disasters.

    If your tax records were lost or destroyed, we can help you to reconstruct them, and make reasonable estimates where necessary.

    Phone our emergency support team on 1800 806 218 and we can discuss the best way we can help you.

    We can also:

    • fast track refunds
    • give you extra time to pay debts, without interest charges
    • give you more time to meet activity statement, income tax and other lodgment obligations, without penalties
    • help you if you are experiencing serious hardship.

    Publications and services

    To find out how to get a publication referred to in this guide and for information about our other services, see More information.

    Is your rental property outside Australia?

    If your property is located outside Australia, special rules apply to the deductibility of your rental property expenses. For more information on foreign source income, see Question 20 in the tax return instructions. If you are unsure of your obligations, contact your recognised tax adviser or us.

    Rental income

    Rental and other rental-related income is the full amount of rent and associated payments that you receive, or become entitled to, when you rent out your property, whether it is paid to you or your agent. You must include your share of the full amount of rent you earn in your tax return.

    Rent and associated payments may be in the form of goods and services. You will need to work out the monetary value of these. For example, if the tenant gives you property or goods as rent instead of money, you include the market value of the property or goods as rental income in your tax return.

    Rental-related income

    You must include rental bond money as income if you become entitled to retain it, for instance, because a tenant defaulted on the rent, or because of damage to your rental property requiring repairs or maintenance.

    If you received an insurance payout, there may be situations where the payout needs to be included as income, for example, if you received an insurance payment to compensate you for lost rent.

    If you received a letting or booking fee, you must include this as part of your rental income.

    Associated payments include all amounts you receive, or become entitled to, as part of the normal, repetitive and recurrent activities through which you intend to generate profit from the use of your rental property.

    If you received a reimbursement or recoupment for deductible expenditure, you may have to include an amount as income. For example, if you received:

    • an amount from a tenant to cover the cost of repairing damage to some part of your rental property and you can claim a deduction for the cost of the repairs, you need to include the whole amount in your income
    • a government rebate for the purchase of a depreciating asset, such as a solar hot-water system, you may need to include an amount in your income. For more information, see Taxation Determination TD 2006/31 – Income tax: is a government rebate received by a rental property owner an assessable recoupment under subsection 20-20(3) of the Income Tax Assessment Act 1997, where the owner is not carrying on a property rental business and receives the rebate for the purchase of a depreciating asset (for example, an energy saving appliance) for use in the rental property.

    You must include as rental income any assessable amounts relating to limited recourse debt arrangements involving your rental property. For more information, see Limited recourse debt arrangements and see the Guide to depreciating assets 2016 (NAT 1996).

    Co-ownership of rental property

    The way that rental income and expenses are divided between co-owners varies depending on whether the co-owners are joint tenants or tenants in common or there is a partnership carrying on a rental property business. Dividing income and expenses according to legal interest

    Co-owners who are not carrying on a rental property business must divide the income and expenses for the rental property in line with their legal interest in the property. If they own the property as:

    • joint tenants, they each hold an equal interest in the property
    • tenants in common, they may hold unequal interests in the property, for example, one may hold a 20% interest and the other an 80% interest.

    Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between co-owners, either oral or in writing, stating otherwise.

    Example 1: Joint tenants

    Mr and Mrs Hitchman own an investment rental property as joint tenants. In the relevant income year, Mrs Hitchman phones us and asks if she can claim 80% of the rental loss. Mrs Hitchman says she is earning $67,000 a year, and Mr Hitchman is earning $31,000. Therefore, it would be better if she claimed most of the rental loss, as she would save more tax. Mrs Hitchman thought it was fair that she claimed a bigger loss because most of the expenses were paid out of her wages. Under a partnership agreement drawn up by the Hitchmans, Mrs Hitchman is supposed to claim 80% of any rental loss.

    Mrs Hitchman was told that where two people own a rental property as joint tenants, the net rental loss must be shared in line with their legal interest in the property. Therefore, the Hitchmans must each include half of the total income and expenses in their tax returns.

    Any agreement that the Hitchmans might draw up to divide the income and expenses in proportions other than equal shares has no effect for income tax purposes. Therefore, even if Mrs Hitchman paid most of the bills associated with the rental property, she would not be able to claim more of the rental property deductions than Mr Hitchman.

    End of example

     

    Example 2: Tenants in common

    In example 1, if the Hitchmans owned their property as tenants in common in equal shares, Mrs Hitchman would still be able to claim only 50% of the total property deductions.

    However, if Mrs Hitchman’s legal interest was 75% and Mr Hitchman’s legal interest was 25%, Mrs Hitchman would have to include 75% of the income and expenses on her tax return and Mr Hitchman would have to include 25% of the income and expenses on his tax return.

    End of example

    Interest on money borrowed by only one of the co-owners which is exclusively used to acquire that person’s interest in the rental property does not need to be divided between all of the co-owners.

    If you don’t know whether you hold your legal interest as a joint tenant or a tenant in common, read the title deed for the rental property. If you are unsure whether your activities constitute a rental property business, see Partners carrying on a rental property business.

    Co-owners of an investment property (not in business)

    A person who simply co-owns an investment property or several investment properties is usually regarded as an investor who is not carrying on a rental property business, either alone or with the other co-owners. This is because of the limited scope of the rental property activities and the limited degree to which a co-owner actively participates in rental property activities.

    Example 3: Co-owners who are not carrying on a rental property business

    The Tobins own, as joint tenants, two units and a house from which they derive rental income. The Tobins occasionally inspect the properties and also interview prospective tenants. Mr Tobin performs most repairs and maintenance on the properties himself, although he generally relies on the tenants to let him know what is required. The Tobins do any cleaning or maintenance that is required when tenants move out. Arrangements have been made with the tenants for the weekly rent to be paid into an account at their local bank. Although the Tobins devote some of their time to rental income activities, their main sources of income are their respective full-time jobs.

    The Tobins are not partners carrying on a rental property business, they are only co-owners of several rental properties. Therefore, as joint tenants, they must each include half of the total income and expenses on their tax returns, that is, in line with their legal interest in the properties.

    End of example

    Partners carrying on a rental property business

    Most rental activities are a form of investment and do not amount to carrying on a business. However, where you are carrying on a rental property business in partnership with others, you must divide the net rental income or loss according to the partnership agreement. You must do this whether or not the legal interests in the rental properties are different to the partners’ entitlements to profits and losses under the partnership agreement. If you do not have a partnership agreement, you should divide your net rental income or loss between the partners equally, see Example 5.

    Example 4: Is it a rental property business?

    The D’Souzas, own a number of rental properties, either as joint tenants or tenants in common. They own eight houses and three apartment blocks (each apartment block comprising six residential units) making a total of 26 properties.

    The D’Souzas actively manage all of the properties. They devote a significant amount of time, an average of 25 hours per week each, to these activities. They undertake all financial planning and decision making in relation to the properties. They interview all prospective tenants and collect all the rents. They carry out regular property inspections and attend to all of the everyday maintenance and repairs themselves or organise for them to be done on their behalf. Apart from income Mr D’Souza earns from shares, they have no other sources of income.

    The D’Souzas are carrying on a rental property business. This is demonstrated by:

    • the significant size and scale of the rental property activities
    • the number of hours the D’Souzas spend on the activities
    • the D’Souzas’ extensive personal involvement in the activities, and
    • the business-like manner in which the activities are planned, organised and carried on.

    Mr and Mrs D’Souza have a written partnership agreement in which they agreed to carry on a rental property business. They have agreed that Mrs D’Souza is entitled to a 75% share of the partnership profits or losses and Mr D’Souza is entitled to a 25% share of the partnership profits or losses.

    Because the D’Souzas are carrying on a rental property business, the net profit or loss it generates is divided between them according to their partnership agreement (in proportions of 75% and 25%), even if their legal interests in the rental properties are equal, that is, they each own 50%.

    End of example

    For more information about dividing net rental income or losses between co-owners, see Taxation Ruling TR 93/32 – Income tax: rental property – division of net income or loss between co-owners.

    For more information about determining whether a rental property business is being carried on, determining whether it is being carried on in partnership, and the distribution of partnership profits and losses, see:

    • Taxation Ruling TR 97/11 – Income tax: am I carrying on a business of primary production?
    • Taxation Ruling TR 94/8 – Income tax: whether a business is carried on in partnership (including ‘husband and wife’ partnerships)
    • Taxation Ruling IT 2423 – Withholding tax: whether rental income constitutes proceeds of business – permanent establishment – deduction for interest
    • Taxation Ruling IT 2316 – Income tax: distribution of partnership profits and losses.

    Paragraph 13 of Taxation Ruling TR 97/11 lists eight indicators to determine whether a business is being carried on. Although this ruling refers to the business of primary production, these indicators apply equally to activities of a non-primary production nature.

    If you are carrying on a business, you may be eligible for the small business concessions. For more information, see Small business entity concessions. Note that the CGT small business concessions do not apply to assets that are used mainly to derive rent.

    Contact your recognised tax adviser or us if you are unsure whether:

    • your rental property activities amount to a partnership carrying on a rental property business
    • you are carrying on a rental property activity as a joint tenant or a tenant in common, or
    • you are in both categories.

    Rental expenses

    You can claim a deduction for certain expenses you incur for the period your property is rented or is available for rent. However, you cannot claim expenses of a capital nature or private nature (although you may be able to claim decline in value deductions or capital works deductions for certain capital expenditure or include certain capital costs in the cost base of the property for CGT purposes).

    Types of rental expenses

    There are three categories of rental expenses, those for which you:

    Expenses for which you cannot claim deductions

    Expenses for which you are not able to claim deductions include:

    • acquisition and disposal costs of the property
    • expenses not actually incurred by you, such as water or electricity usage charges borne by your tenants
    • expenses that are not related to the rental of a property, such as expenses connected to your own use of a holiday home that you rent out for part of the year
    • travel expenses to inspect a property before you buy it
    • travel expenses to (or other costs for) rental seminars about helping you find a rental property to invest in.

    For more information on:

    Acquisition and disposal costs

    You cannot claim a deduction for the costs of acquiring or disposing of your rental property. Examples of expenses of this kind include the purchase cost of the property, conveyancing costs, advertising expenses and stamp duty on the transfer of the property (but not stamp duty on a lease of property; see Lease document expenses). However, these costs may form part of the cost base of the property for CGT purposes. See also Capital gains tax.

    Example 5: Acquisition costs

    The Hitchmans purchased a rental property for $170,000 in July 2015. They also paid surveyor’s fees of $350 and stamp duty of $750 on the transfer of the property. Neither of these expenses is deductible against the Hitchmans’ rental income. However, in addition to the $170,000 purchase price, the incidental costs of $350 and $750 (totalling $1,100) are included in the cost base and reduced cost base of the property.

    This means that when the Hitchmans dispose of the property, the cost base or reduced cost base for the purposes of determining the amount of any capital gain or capital loss will be $171,100 ($170,000 + $1,100).

    End of example

    See also:

    Expenses for which you can claim an immediate deduction

    Expenses for which you may be entitled to an immediate deduction in the income year you incur the expense include:

    You can claim a deduction for these expenses only if you actually incur them and they are not paid by the tenant. Deductions marked with an asterisk (*) are discussed in detail on the following pages.

    Expenses prior to property being available for rent

    You can claim expenditure such as interest on loans, local council, water and sewage rates, land taxes and emergency services levy on land you have purchased to build a rental property or incurred during renovations to a property you intend to rent out. However, you cannot claim deductions from the time your intention changes, for example if you decide to use the property for private purposes.

    Apportionment of rental expenses

    There may be situations where not all your expenses are deductible and you need to work out the deductible portion. To do this you subtract any non-deductible expenses from the total amount you have for each category of expense; what remains is your deductible expense.

    You will need to apportion your expenses if any of the following apply to you:

    • your property is available for rent for only 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.
    Is the property genuinely available for rent?

    Rental expenses are deductible to the extent that they are incurred for the purpose of producing rental income.

    Expenses may be deductible for periods when the property is not rented out providing the property is genuinely available for rent - that is:

    • the property is advertised in ways which give it broad exposure to potential tenants, and
    • having regard to all the circumstances, tenants are reasonably likely to rent it.

    The absence of these factors generally indicates the owner does not have a genuine intention to make income from the property and may have other purposes - such as using it or reserving it for private use.

    Factors that may indicate a property is not genuinely available for rent include:

    • it is advertised in ways that limit its exposure to potential tenants – for example, the property is only advertised    
      • at your workplace
      • by word of mouth
      • outside annual holiday periods when the likelihood of it being rented out is very low
    • the location, condition of the property, or accessibility to the property, mean that it is unlikely tenants will seek to rent it
    • you place unreasonable or stringent conditions on renting out the property that restrict 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 as well as having conditions like 'no children' and 'no pets'.
    • you refuse to rent out the property to interested people without adequate reasons.

    Example 6 – Unreasonable rental conditions placed on property

    Josh and Maria are retired and own a holiday home where they stay periodically. They advertise the property for short-term holiday rental through a real estate agent.

    Josh and Maria have instructed the agent that they must personally approve tenants before they are permitted to stay and prospective tenants must provide references and have no children or pets.

    At no time during the year do Josh and Maria agree to rent out the property even though they receive a number of inquiries.

    The conditions placed on the renting of the property and Josh and Maria's refusal to rent it to prospective tenants indicate their intention is not to make income from the property, but to reserve it for their own use. Josh and Maria cannot claim any deductions for the property.

    Josh and Maria need to keep records of their expenses. If they make a capital gain when they sell the property, their property expenses (such as property insurance, interest on the funds borrowed to purchase the property, repair costs, maintenance costs and council rates) are taken into account in working out their capital gain.

    Example 8 – Private use by owners during key periods with little or no demand for property at other times

    Daniel and Kate have two school aged children and own a holiday house near the beach. The house is located in an area that is popular with summer holiday makers but is only accessible by four-wheel drive vehicle.

    During the year Daniel and Kate advertise the property for rent through a local real estate agent. However, Daniel and Kate advise the agent that during each school holiday period the property is not to be rented out. They want to reserve the property for their own use.

    While there would be demand for the property during the summer holiday period, there is no demand outside this period because of the small number of holiday makers and the location and limited access to the property.

    The house is not rented out at all during the income year.

    In Daniel and Kate’s circumstances, they cannot claim any deductions for the property. They did not have a genuine intention to make income from the property. It was essentially for private use.

    If in the circumstances Daniel and Kate happened to rent out the property for a period, they can claim a deduction for a proportion of their expenses based on the period the property was actually rented out. For example, if the house was rented out for two weeks, they could claim a deduction for 2/52 of their expenses.

    Daniel and Kate need to keep records of their expenses. If they make a capital gain when they sell the property, the proportion of expenses (such as interest, insurance, maintenance costs and council rates) they could not claim a deduction for are taken into account in working out their capital gain.

    End of example

    Property available for part-year rental

    If you use your property for both private purposes and to produce rental income , you cannot claim a deduction for the portion of any expenditure that relates to your private use. Examples of properties you may use for both private and rental purposes are holiday homes and time-share units. In cases such as these you cannot claim a deduction for any expenditure incurred for those periods when the home or unit was not available for rent - including when it was used by you, your relatives or your friends for private purposes.

    In some circumstances, it may be easy 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 available for rent during the year as a proportion of the total year.

    It may not be appropriate to apportion all 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 phone calls you make to a tradesperson to fix damage caused by a tenant or the cost of removing rubbish left by tenants. On the other hand, no part of certain expenses that relate solely to periods when the property is not rented out are deductible. This would include the cost of phone calls you make to a tradesperson to fix damage caused when you were using the property for private purposes.

    Example 8: Apportionment of expenses where property is rented for part of the year

    Dave owns a property in Tasmania. He rents out his property from 1 November 2015 to 30 March 2016, a total of 151 days. He lives alone in the house for the rest of the year. The council rates are $1,000 per year. He apportions the council rates on the basis of time rented.

    Rental expense x portion of year  =  deductible amount

    He can claim a deduction against his rental income of

    $1,000

    x

    151
    366

    =

    $413

    If Dave has to make phone calls to tradespersons to fix damage caused by a tenant or has any other expenses which relate solely to the renting of his property, he would work out his deduction for these by reasonably estimating the cost of each of these expenses: it would not be appropriate for him to work out his deduction by claiming 151/365 of the total expense.

    End of example

     

    Example 9 – Private use of property by owner

    Gail and Craig have a property which they jointly own. They rent the property out at market rates and use it as a holiday home. They advertise the property for rent during the year through a real estate agent.

    Gail and Craig use the property themselves for four weeks during the year.

    During the year, Gail and Craig’s expenses for the property are $34,801. This includes interest on the funds borrowed to purchase the holiday home, property insurance, agent's commission, maintenance costs, council rates, the decline in value of depreciating assets and capital works deductions.

    Gail and Craig receive $25,650 from renting out the property during the year.

    No deductions can be claimed for the four weeks Gail and Craig used the property themselves.

    Gail and Craig can claim deductions for their expenses based on the proportion of the income year the property was rented out or was genuinely available for rent.

    Income tax return

    Gail and Craig’s rental income and deductions for the year are as follows:

    Rent received

     

    $25,650

    Rental deductions

    (48/52 x $34,801)

    $32,124

    Rental loss

     

    ($6,474)

    As they are joint owners, Gail and Craig claim a rental loss of $3,237 each in their tax returns.

    Gail and Craig need to keep records of their expenses. If they make a capital gain when they sell the property, the proportion of expenses they could not claim a deduction for are taken into account in working out their capital gain.

    End of example

     

    Example 10 – Holiday home rented out for part of the year

    Akshay and Jesminda have a holiday home they own jointly. They rent it out between 20 December and 17 January because they can make a significant amount of money which helps offset the costs of owning the property for the year. They reserve the property for their own use for the rest of the year.

    Akshay and Jesminda's expenses for the holiday home for the year are $31,200. This includes interest on the funds borrowed to purchase the property, property insurance, the agent's commission, repair costs, maintenance costs and council rates.

    Akshay and Jesminda receive $3,000 per week from renting the property out during the four weeks over the Christmas-New Year period.

    Overall the property expenses are more than the rent they receive. However, Akshay and Jesminda can only claim deductions for the proportion of the year they rent out the property (four weeks). They declare net rental income in their tax returns:

    Rent received

     

    $12,000

    Rental deductions

    (4/52 weeks X $31,200)

    $2,400

    Net rental income

     

    $9,600

    As they are joint owners, Akshay and Jesminda declare net rental income of $4,800 each in their tax returns.

    Akshay and Jesminda need to keep records of their expenses. If they make a capital gain when they sell the property, the proportion of expenses they could not claim a deduction for are taken into account in working out their capital gain.

    End of example

    Only 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 the expenses that relates to the rental income. As a general guide, apportionment should be made on a floor-area basis that is, by reference to the floor area of that part of the residence solely occupied by the tenant, together with a reasonable figure for tenant access to the general living areas, including garage and outdoor areas if applicable.

    Example 11: Renting out part of a residential property

    Michael’s private residence includes a self-contained flat. The floor area of the flat is one-third of the area of the residence.

    Michael rented out the flat for six months in the year at $100 per week. During the rest of the year his niece, Fiona, lived in the flat rent free.

    The annual mortgage interest, building insurance, rates and taxes for the whole property amounted to $9,000. Using the floor-area basis for apportioning these expenses, one-third (that is $3,000) applies to the flat. However, as Michael used the flat to produce rental income for only half of the year, he can claim a deduction for only $1,500 (half of $3,000).

    Assuming there were no other expenses, Michael would calculate the income and expenses from his property as:

    Rent

    $2,600

    (26 weeks x $100)

    Expenses

    $1,500

    ($9,000 x 1/3 x 50%)

    Net rental income

    $1,100

     

     

    End of example

     

    Example 12: Renting out part of a residential property

    John decided to rent out one room in his residence. The floor area of the room is 20 percent of the area of the residence. John also shared equal access to the general areas such as the kitchen, bathroom and laundry. The floor area of these rooms is 60 percent of the area of the residence.

    John rented out the room and access to the general areas for 12 months in the year at $250 per week.

    The annual mortgage interest, building insurance, rates and taxes for the whole property amounted to $12,000. Using the floor-area basis for apportioning these expenses, 20% (that is $2,400) applies to the room.

    Assuming there were no other expenses, Michael would calculate the income and expenses from his property as:

    Rent

    $13,000

    (52 weeks x $250)

    Room Expenses

    General areas expenses

    $2,400

    $3,600

    ($12,000 x 20%)

    ($12,000 x 60% x 50%)

    Net rental income

    $7,000

     

     

    End of example

    For more information about the apportionment of expenses, see Taxation Ruling IT 2167 – Income tax: rental properties – non-economic rental, holiday home, share of residence, etc. cases, family trust cases and Taxation Ruling TR 97/23 – Income tax: deductions for repairs.

    Non-commercial rental

    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 13 – Private use by owner and rented to relatives or friends at a discounted rate

    Kelly and Dean have a holiday home they own jointly. During holiday periods, the market rent is $840 per week. They advertise the property for rent during the year through a real estate agent.

    Kelly and Dean arrange with the agent for their friend Kimarny to stay at the property for three weeks at a nominal rent of $200 per week. They also use the property themselves for four weeks during the year.

    During the year, Kelly and Dean's expenses for the property are $20,800 ($400 per week). This includes interest on the funds borrowed to purchase the holiday home, property insurance, the agent's commission, maintenance costs, council rates, the decline in value of depreciating assets and capital works deductions.

    Kelly and Dean receive $10,000 from renting out the property during the year. This includes the $600 they received from Kimarny.

    No deductions can be claimed for the four weeks Kelly and Dean used the property themselves.

    Kelly and Dean can claim deductions for their expenses based on the proportion of the income year it was rented out or was genuinely available for rent at the market rate: 45/52 weeks x $20,800 = $18,000.

    If Kimarny had rented the property for the market rate, Kelly and Dean would have been able to claim deductions for the three week period of $1200 (3/52 x $20,800 = $1200).

    However because the rent Kelly and Dean received from Kimarny was less than market rate and their expenses were more than the rent received during that period, they cannot claim all of the expenses. Kelly and Dean can only claim deductions equal to the amount of the rent during this period - that is, $600.

    Income tax return

    Kelly and Dean's rental income and deductions for the year are as follows:

    Rent received

     

    $10,000

    Rental deductions

    ($18,000 + $600)

    $18,600

    Rental loss

     

    ($8,600)

    As they are joint owners, Kelly and Dean claim a rental loss of $4,300 each in their tax returns.

    Kelly and Dean need to keep records of their expenses. If they make a capital gain when they sell the property, the proportion of expenses they could not claim a deduction for are taken into account in working out their capital gain.

    End of example

    For more information about non-commercial rental arrangements, see Taxation Ruling IT 2167.

    Co-owner rents property

    If you own a property:

    • as tenant in common with another person,
    • you do not live in the property, and
    • you let your part of a property to your co-owner at a commercial rental rate

    then the rent received is assessable income. Accordingly, you may deduct any losses or outgoings incurred in gaining the rental income, provided the losses or outgoings are not of a capital, domestic or private nature.

    Body corporates

    Strata title body corporates are constituted under the strata title legislation of the various states and territories.

    Body corporate fees and charges

    You may be able to claim a deduction for body corporate fees and charges you incur for your rental property.

    Body corporate fees and charges may be incurred to cover the cost of day-to-day administration and maintenance or they may be applied to a special purpose fund.

    Payments you make to body corporate administration funds and general purpose sinking funds are considered to be payments for the provision of services by the body corporate and you can claim a deduction for these levies at the time you incur them. However, if the body corporate requires you to make payments to a special purpose fund to pay for particular capital expenditure, these levies are not deductible.

    Similarly, if the body corporate levies a special contribution for major capital expenses to be paid out of the general purpose sinking fund, you will not be entitled to a deduction for this special contribution amount. This is because payments to cover the cost of capital improvements or repairs of a capital nature are not deductible; see Repairs and maintenance and Taxation Ruling TR 97/23. You may be able to claim a capital works deduction for the cost of capital improvements or repairs of a capital nature once the cost has been charged to either the special purpose fund or, if a special contribution has been levied, the general purpose sinking fund; see Capital works deductions.

    A general purpose sinking fund is one established to cover a variety of unspecified expenses (some of which may be capital expenses) that are likely to be incurred by the body corporate in maintaining the common property (for example, painting of the common property, repairing or replacing fixtures and fittings of the common property). A special purpose fund is one that is established to cover a specified, generally significant, expense which is not covered by ongoing contributions to a general purpose sinking fund. Most special purpose funds are established to cover costs of capital improvement to the common property.

    If the body corporate fees and charges you incur are for things like the maintenance of gardens, deductible repairs and building insurance, you cannot also claim deductions for these as part of other expenses. For example, you cannot claim a separate deduction for garden maintenance if that expense is already included in body corporate fees and charges.

    Common property

    Common property is that part of a strata plan not comprised in any proprietor's lot, and includes stairways, lifts, passages, common garden areas, common laundries and other facilities intended for common use.

    The ownership of the common property varies according to the relevant state strata title legislation. However, in all states, the income derived from the use of the common property is income of lot owners. Accordingly, you can claim deductions for capital works and the decline in value of depreciating assets that form part of the common property in proportion to your lot entitlement.

    For more information about strata title body corporates, see Taxation Ruling TR 2015/3.

    Interest on loans

    If you take out a loan to purchase a rental property, you can claim the interest charged on that loan, or a portion of the interest, as a deduction. However, the property must be rented, or available for rental, in the income year for which you claim a deduction. If you start to use the property for private purposes, you cannot claim the interest expenses you incur after you start using the property for private purposes.

    While the property is rented, or available for rent, you may also claim interest charged on loans taken out:

    • to purchase depreciating assets
    • for repairs
    • for renovations.

    Similarly, if you take out a loan to purchase land on which to build a rental property or to finance renovations to a property you intend to rent out, the interest on the loan will be deductible from the time you took the loan out. However, if your intention changes, for example, you decide to use the property for private purposes and you no longer use it to produce rent or other income, you cannot claim the interest after your intention changes.

    Banks and other lending institutions offer a range of financial products which can be used to acquire a rental property. Many of these products permit flexible repayment and redraw facilities. As a consequence, a loan might be obtained to purchase both a rental property and, for example, a private car. In cases of this type, the interest on the loan must be apportioned into deductible and non-deductible parts according to the amounts borrowed for the rental property and for private purposes. A simple example of the necessary calculation for apportionment of interest is in example 14. If you have a loan account that has a fluctuating balance due to a variety of deposits and withdrawals and it is used for both private purposes and rental property purposes, you must keep accurate records to enable you to calculate the interest that applies to the rental property portion of the loan; that is, you must separate the interest that relates to the rental property from any interest that relates to the private use of the funds.

    Some rental property owners borrow money to buy a new home and then rent out their previous home. If there is an outstanding loan on the old home and the property is used to produce income, the interest outstanding on the loan, or part of the interest, will be deductible. However, an interest deduction cannot be claimed on the loan used to buy the new home because it is not used to produce income. This is the case whether or not the loan for the new home is secured against the former home.

    Example 14: Apportionment of interest

    The Hitchmans decide to use their bank’s ‘Mortgage breaker’ account to take out a loan of $209,000 from which $170,000 is to be used to buy a rental property and $39,000 is to be used to purchase a private car. They will need to work out each year how much of their interest payments is tax deductible. The following whole-year example illustrates an appropriate method that could be used to calculate the proportion of interest that is deductible. The example assumes an interest rate of 6.75% per annum on the loan and that the property is rented from 1 July:

    Interest for year 1 = $209,000 x 6.75% = $14,108

    Apportionment of interest payment related to rental property:

    Total interest expense

    x

    rental property loan
    total borrowings

    =

    deductible interest

    $14,108

    x

    $170,000
    $209,000

    =

    $11,475

     

    End of example

    More complicated investment loan interest payment arrangements also exist, such as 'linked' or 'split' loans which involve two or more loans or sub-accounts in which one is used for private purposes and the other for business purposes. Repayments are allocated to the private account and the unpaid interest on the business account is capitalised. This is designed to allow you to pay off your home loan faster while deferring payments on your rental property loan and maximises your potential interest deduction by creating interest on interest.

    This can create a tax benefit because the deduction for interest actually incurred on the investment account is greater than the amount of interest that might reasonably be expected to have been allowable but for using the loan arrangement outlined above. In this case we may disallow some or all of your interest deductions. You should seek advice from your recognised tax adviser or contact us to discuss your situation. For more information see Taxation Determination TD 2012/1.

    If you prepay interest it may not be deductible all at once; see Prepaid expenses.

    Thin capitalisation

    If you are an Australian resident and you or any associate entities have certain international dealings, overseas interests or if you are a foreign resident, thin capitalisation rules may affect you if your debt deductions, such as interest, combined with those of your associate entities for 2015–16 are more than $2,000,000.

    Companies, partnerships and trusts that have international dealings will need to complete the International Dealings Schedule (IDS). See the International dealings schedule 2016 (NAT 73345).

    For more information about the deductibility of interest, see:

    • Taxation Ruling TR 2004/4 – Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities
    • Taxation Ruling TR 2000/2 – Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities
    • Taxation Ruling TR 98/22 – Income tax: the taxation consequences for taxpayers entering into certain linked or split loan facilities
    • Taxation Ruling TR 95/25 – Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts, FC of T v. Smith
    • Taxation Ruling TR 93/7 – Income tax: whether penalty interest payments are deductible
    • Taxation Determination TD 1999/42 – Income tax: do the principles set out in Taxation Ruling TR 98/22 apply to line of credit facilities?
    • Taxation Determination TD 2012/1 – Income tax: can Part IVA of the Income Tax Assessment Act 1936 apply to deny a deduction for some, or all, of the interest expense incurred in respect of an 'investment loan interest payment arrangement' of the type described in this Determination?
    • Expenses you can claim

    If you need help to calculate your interest deduction, seek advice from your recognised tax adviser or contact us to discuss your situation.

    Land tax

    Land tax liabilities may be deductible, depending on when the land tax liability arises. The timing of when you incur a liability to pay land tax will depend on the relevant state legislation. Your liability to pay land tax does not rely on the lodgment of a land tax return or on the taxing authority issuing a land tax assessment. In many states, the year in which the property is used for the relevant purposes determines when you are liable, even if an assessment does not issue until a later date.

    When you receive land tax assessments in arrears, the amount of land tax is not deductible in the income year in which you pay the arrears. The land tax amounts are deductible in the respective income years to which the liability for the land tax relates.

    If a land owner receives a land tax assessment for a year, then later in the same financial year either sells the property or starts to use it as their residence, there is no requirement to apportion the land tax deduction. We consider that the land tax liability was incurred for an income producing purpose because the liability for it was founded in the property's use for income-producing purposes.

    In the event of the property being sold and there being an adjustment of the land tax, the recovered amount should be declared as rental income by the vendor.

    Lease document expenses

    Your share of the costs of preparing and registering a lease and the cost of stamp duty on a lease are deductible to the extent that you have used, or will use, the property to produce income. This includes any such costs associated with an assignment or surrender of a lease.

    For example, freehold title cannot be obtained for properties in the Australian Capital Territory (ACT). They are commonly acquired under a 99-year crown lease. Therefore, stamp duty, preparation and registration costs you incur on the lease of an ACT property are deductible to the extent that you use the property as a rental property.

    Legal expenses

    Some legal expenses incurred in producing your rental income are deductible. These include the costs of:

    • evicting a non-paying tenant
    • taking court action for loss of rental income
    • defending damages claims for injuries suffered by a third party on your rental property.

    Most legal expenses, however, are of a capital nature and are therefore not deductible. These include costs of:

    • purchasing or selling your property
    • resisting land resumption
    • defending your title to the property.

    For more information, see Expenses you can claim

    Non-deductible legal expenses which are capital in nature may, however, form part of the cost base of your property for capital gains tax purposes.

    For more information, see Capital gains tax and Guide to capital gains tax 2016.

    Example 165: Deductible legal expenses

    In September 2015, the Hitchmans’ tenants moved out, owing six weeks rent. The Hitchmans retained the bond money and took the tenants to court to terminate the lease and recover the balance of the rent. The legal expenses they incurred doing this are fully deductible. The Hitchmans were seeking to recover rental income, and they wished to continue earning income from the property. The Hitchmans must include the retained bond money and the recovered rent in their rental income in the year of receipt.

    End of example

    Mortgage discharge expenses

    Mortgage discharge expenses are the costs involved in discharging a mortgage other than payments of principal and interest. These costs are deductible in the year they are incurred to the extent that you took out the mortgage as security for the repayment of money you borrowed to use to produce your rental income.

    For example, if you used a property to produce rental income for half the time you held it and as a holiday home for the other half of the time, 50% of the costs of discharging the mortgage are deductible.

    Mortgage discharge expenses may also include penalty interest payments. Penalty interest payments are amounts paid to a lender, such as a bank, to agree to accept early repayment of a loan, including a loan on a rental property. The amounts are commonly calculated by reference to the number of months that interest payments would have been made had the premature repayment not been made.

    Penalty interest payments on a loan relating to a rental property are deductible if:

    • the loan moneys borrowed are secured by a mortgage over the property and the payment effects the discharge of the mortgage, or
    • payment is made in order to rid the taxpayer of a recurring obligation to pay interest on the loan.

    Property agents fees or commissions

    You can claim the cost of fees such as regular management fees or commissions you pay to a property agent or real estate agent for managing, inspecting or collecting rent for a rental property on your behalf.

    You are unable to claim the cost of:

    • commissions or other costs paid to a real estate agent or other person for the sale or disposal of a rental property
    • buyer's agent fees paid to any entity or person you engage to find you a suitable rental property to purchase.

    These costs may form part of the cost base of your property for capital gains purposes.

    Repairs and maintenance

    Expenditure for repairs you make to the property may be deductible. However, generally the repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.

    Repairs generally involve a replacement or renewal of a worn out or broken part, for example, replacing worn or damaged curtains, blinds or carpets between tenants. Maintenance generally involves keeping the property in a tenantable condition, for example repainting faded or damaged interior walls.

    However, the following expenses are capital, or of a capital nature, and are not deductible:

    • replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator)
    • improvements, renovations, extensions and alterations
    • initial repairs, for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.

    You may be able to claim capital works deductions for these expenses; for more information see Capital works deductions. Expenses of a capital nature may form part of the cost base of the property for capital gains tax purposes (but not generally to the extent that capital works deductions have been or can be claimed for them). For more information, see the Guide to capital gains tax 2016. See also Cost base adjustments for capital works deductions.

    Example 16: Repairs prior to renting out the property

    The Hitchmans needed to do some repairs to their newly acquired rental property before the first tenants moved in. They paid an interior decorator to repaint dirty walls, replace broken light fittings and repair doors on two bedrooms. They also discovered white ants in some of the floorboards. This required white ant treatment and replacement of some of the boards.

    These expenses were incurred to make the property suitable to be rented out and did not arise from the Hitchmans’ use of the property to generate rental income. The expenses are capital in nature and the Hitchmans are not able to claim a deduction for these expenses.

    End of example

    Repairs to a rental property will generally be deductible if:

    • the property continues to be rented on an ongoing basis, or
    • the property remains available for rental but there is a short period when the property is unoccupied, for example, where unseasonable weather causes cancellations of bookings or advertising is unsuccessful in attracting tenants.

    Expenditure for repairs you make to the property may also be deductible where the expenditure is incurred in a year of income that the property is held for income producing purposes, even though the property has previously been held by you for private purposes, and some or all of the damage is attributable to when the property was held for private purposes.

    If you no longer rent the property, the cost of repairs may still be deductible provided:

    • the need for the repairs is related to the period in which the property was used by you to produce income
    • the property was income-producing during the income year in which you incurred the cost of repairs.

    Example 17: Repairs when the property is no longer rented out

    After the last tenants moved out in September 2015, the Hitchmans discovered that the stove did not work, kitchen tiles were cracked and the toilet window was broken. They also discovered a hole in a bedroom wall that had been covered with a poster. In October 2015 the Hitchmans paid for this damage to be repaired so they could sell the property.

    As the tenants were no longer in the property, the Hitchmans were not using the property to produce rental income. However, they could still claim a deduction for repairs to the property because the repairs related to the period when their tenants were living in the property and the repairs were completed before the end of the income year in which the property ceased to be used to produce income.

    End of example

    Examples of repairs for which you can claim deductions are:

    • replacing broken windows
    • maintaining plumbing
    • repairing electrical appliances.

    Examples of improvements for which you cannot claim deductions are:

    • landscaping
    • insulating the house
    • adding on another room.

    For more information, see

    Asbestos remediation

    Work undertaken to an investment property in dealing with asbestos may, in some cases, be a deductible repair as described above. This depends on the nature or extent of the remediation process.

    Where the expenditure is not otherwise deductible as a repair, a deduction may be available as an ‘environmental protection activity’.

    For more information, see Asbestos affected rental properties.

    Travel and car expenses

    If you travel to inspect or maintain your property or collect the rent, you may be able to claim the costs of travelling as a deduction. You are allowed a full deduction where the sole purpose of the trip relates to the rental property. However, in other circumstances you may not be able to claim a deduction or you may be entitled to only a partial deduction.

    If you fly to inspect your rental property, stay overnight, and return home on the following day, all of the airfare and accommodation expenses would generally be allowed as a deduction provided the sole purpose of your trip was to inspect your rental property.

    Example 18: Travel and vehicle expenses

    Although their local rental property was managed by a property agent, Mr Hitchman decided to inspect the property three months after the tenants moved in. During the income year Mr Hitchman also made a number of visits to the property in order to carry out minor repairs. Mr Hitchman travelled 162 kilometres during the course of these visits. Mr Hitchman can claim the following deduction:

    Distance travelled x rate per km = deductible amount
    162km x 66 cents per km = $107

    On his way to golf each Saturday, Mr Hitchman drove past the property to ‘keep an eye on things’. These motor vehicle expenses are not deductible as they are incidental to the private purpose of the journey.

    End of example

    For the appropriate rates, see the Individual tax return instructions or Work-related car expenses.

    Apportionment of travel expenses

    Where travel related to your rental property is combined with a holiday or other private activities, you may need to apportion the expenses.

    If you travel to inspect your rental property and combine this with a holiday, you need to take into account the reasons for your trip. If the main purpose of your trip is to have a holiday and the inspection of the property is incidental to that main purpose, you cannot claim a deduction for the cost of the travel. However, you may be able to claim local expenses directly related to the property inspection and a proportion of accommodation expenses.

    Example 19: Apportionment of travel expenses

    The Hitchmans also owned another rental property in a resort town on the north coast of Queensland. They spent $1,000 on airfares and $1,500 on accommodation when they travelled from their home in Perth to the resort town, mainly for the purpose of holidaying, but also to inspect the property. They also spent $50 on taxi fares for the return trip from the hotel to the rental property. The Hitchmans spent one day on matters relating to the rental property and nine days swimming and sightseeing.

    No deduction can be claimed for any part of the $1,000 airfares.

    The Hitchmans can claim a deduction for the $50 taxi fare.

    A deduction for 10% of the accommodation expenses (10% of $1,500 = $150) would be considered reasonable in the circumstances. The total travel expenses the Hitchmans can claim are therefore $200 ($50 taxi fare plus $150 accommodation). Accordingly, Mr and Mrs Hitchman can each claim a deduction of $100.

    End of example

    For more information, see Rental properties - claiming travel expense deductions.

    Local government expenses

    You can claim a deduction for local government rates and levies for the period your property is rented or is available for rent.

    Where you fail to pay local government rates and charges for the property by the due dates and you become liable to pay interest charges under the relevant state law, you can claim the late interest charges as a tax deduction. It is not excluded by penalty provisions of the tax law. We consider the imposition of interest in these circumstances is not a pecuniary punishment for a breach of the Local Government Act but an administrative charge recognising the time value of money. The use of a time factor in the calculation is designed to compensate the local government for the full amount of rates not having been paid by the due date. The interest payment is accordingly deductible to the taxpayer in the year in which it is incurred.

    If the local council in which your rental property is located imposes an annual emergency services levy, you can claim a deduction for that amount. An emergency service levy is a charge imposed by a local council on property owners to meet some of the costs for the provision of emergency services by the Country Fire Authority, the Metropolitan Fire Authority, the Police Force and other agencies. It is calculated based on the value of the land and charged annually. We consider it is an ongoing expense incurred in the course of earning your rental income and is therefore a deductible expense.

    Expenses deductible over a number of income years

    There are three types of expenses you may incur for your rental property that may be claimed over a number of income years:

    • borrowing expenses
    • amounts for decline in value of depreciating assets
    • capital works deductions.

    Each of these categories is discussed in detail.

    Borrowing expenses

    These are expenses directly incurred in taking out a loan for the property. They include:

    • loan establishment fees
    • title search fees charged by your lender
    • costs for preparing and filing mortgage documents
    • mortgage broker fees
    • stamp duty charged on the mortgage
    • fees for a valuation required for loan approval
    • lender's mortgage insurance billed to the borrower.

    The following are not borrowing expenses:

    • insurance policy premiums on a policy that provides for your loan on the property to be paid out in the event that you die or become disabled or unemployed
    • interest expenses
    • stamp duty charged on the transfer of the property
    • stamp duty incurred to acquire a leasehold interest in property (such as an ACT 99-year Crown lease).

    If your total borrowing expenses are more than $100, the deduction is spread over five years or the term of the loan, whichever is less. If the total deductible borrowing expenses are $100 or less, they are fully deductible in the income year they are incurred.

    If you repay the loan early and in less than five years, you can claim a deduction for the balance of the borrowing expenses in the year of repayment.

    If you obtained the loan part way through the income year, the deduction for the first year will be apportioned according to the number of days in the year that you had the loan.

    Example 20: Apportionment of borrowing expenses

    In order to secure a 20-year loan of $209,000 to purchase a rental property for $170,000 and a private motor vehicle for $39,000, the Hitchmans paid a total of $1,670 in establishment fees, valuation fees and stamp duty on the loan. As the Hitchmans’ borrowing expenses are more than $100, they must be apportioned over five years, or the period of the loan, whichever is the lesser. Also, because the loan was to be used for both income-producing and non-income producing purposes, only the income-producing portion of the borrowing expenses is deductible. As they obtained the loan on 17 July 2015, they would work out the borrowing expense deduction for the first year as follows:

     

    Borrowing expenses

    x

    number of
    relevant days in year
    number of days in the
    5-year period

    =

    maximum amount for the income year

    x

    rental
    property loan
    total borrowings

    =

    deduction for year

    Year 1

    (leap year)

    $1,670

    x

      350 days  
    1,827 days

    =

    $320

    x

    $170,000
    $209,000

    =

    $260

    Their borrowing expense deductions for subsequent years would be worked out as follows:

     

    Borrowing expenses remaining

    x

    number of
    relevant days in year
    number of days in the
    5-year period

    =

    maximum amount for the income year

    x

    rental
    property loan
    total borrowings

    =

    Deduction for year

    Year 2

     

    $1,350

    x

      365 days  
    1,477 days

    =

    $334

    x

    $170,000
    $209,000

    =

    $271

    Year 3

     

    $1,016

    x

      365 days  
    1,112 days

    =

    $333

    x

    $170,000
    $209,000

    =

    $271

    Year 4

    $683

    x

      365 days  
    747 days

    =

    $334

    x

    $170,000
    $209,000

    =

    $271

    Year 5

    (leap year)

    $349

    x

      366 days  
    382 days

    =

    $334

    x

    $170,000
    $209,000

    =

    $272

    Year 6

    $15

    x

      16 days  
    16 days

    =

    $15

    x

    $170,000
    $209,000

    =

    $12

     

    End of example

    Deduction for decline in value of depreciating assets

    When you purchase a rental property, you are treated for tax purposes as having bought a building, plus various separate items of 'plant'. Items of plant are depreciating assets, such as air conditioners, stoves and other items. The purchase price accordingly needs to be allocated between the 'building' and various depreciating assets. For more information about 'plant', see Definitions.

    You can deduct an amount equal to the decline in value for an income year of a depreciating asset that you held for any time during the year. However, your deduction is reduced to the extent your use of the asset is for other than a taxable purpose. If you own a rental property, the taxable purpose will generally be for the purpose of producing rental income.

    Some items found in a rental property are regarded as part of the setting for the rent-producing activity and are not treated as separate assets in their own right. If your depreciating asset is not plant and it is fixed to, or otherwise part of, a building or structural improvement, your expenditure will generally be construction expenditure for capital works and only a capital works deduction may be available.

    For more information, see Capital works deductions.

    How do you work out your deduction?

    You work out your deduction for the decline in value of a depreciating asset using either the prime cost or diminishing value method. Both methods are based on the effective life of the asset. You can work out your deductions using the Depreciation and Capital Allowances Tool (DCAT).

    The diminishing value method assumes that the decline in value each year is a constant proportion of the remaining value and produces a progressively smaller decline over time.

    For depreciating assets you started to hold on or after 10 May 2006, you generally use the following formula for working out decline in value using the diminishing value method:

    base value*

    x

    days held**
    365

    x

             200%        
    asset’s effective life

    * For the income year in which an asset is first used or installed ready for use for any purpose, the base value is the asset’s cost. For a later income year, the base value is the asset’s opening adjustable value plus any amounts included in the asset’s second element of cost for that year.

    ** Can be 366 in a leap year.

    This formula does not apply in some cases, such as if you dispose of and reacquire an asset just so the decline in value of the asset can be worked out using this formula.

    For depreciating assets you started to hold prior to 10 May 2006, the formula for working out decline in value using the diminishing value method is:

    base value*

    x

    days held**
    365

    x

             150%        
    asset’s effective life

    * For the income year in which an asset is first used or installed ready for use for any purpose, the base value is the asset’s cost. For a later income year, the base value is the asset’s opening adjustable value plus any amounts included in the asset’s second element of cost for that year.

    ** Can be 366 in a leap year.An asset’s cost has two elements. The first element of cost is, generally, amounts you are taken to have paid to hold the asset, such as the purchase price. The second element of cost is, generally, the amount you are taken to have paid to bring the asset to its present condition, such as the cost of capital improvements to the asset. If more than one person holds a depreciating asset, each holder works out their deduction for the decline in value of the asset based on their interest in the asset and not on the cost of the asset itself.

    The adjustable value of a depreciating asset is its cost (first and second elements) less its decline in value up to that time. Adjustable value is similar to the concept of undeducted cost used in the former depreciation provisions. The opening adjustable value of an asset for an income year is generally the same as its adjustable value at the end of the previous income year.

    The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life. The formula for working out decline in value using the prime cost method is:

    asset’s cost

    x

    days held**
    365

    x

             100%        
    asset’s effective life

    ** Can be 366 in a leap year

    The formula under the prime cost method may have to be adjusted if the cost, effective life or adjustable value of the asset is modified. For more information, see the Guide to depreciating assets 2016.

    Under the diminishing value method, the decline in value of an asset cannot amount to more than its base value. Under the prime cost method the general rule is value of an asset cannot exceed its opening adjustable value.

    If you use a depreciating asset for other than a taxable purpose (for example, you use the same lawn mower at both your rental property and your private residence) you are allowed only a partial deduction for the asset’s decline in value, based on the percentage of the asset’s total use that was for a taxable purpose.

    Effective life

    Generally, the effective life of a depreciating asset is how long it can be used to produce income:

    • having regard to the wear and tear you reasonably expect from your expected circumstances of use
    • assuming that it will be maintained in reasonably good order and condition
    • having regard to the period within which it is likely to be scrapped, sold for no more than scrap value or abandoned.

    Effective life is expressed in years, including fractions of years. It is not rounded to the nearest whole year.

    For most depreciating assets you can choose to work out the effective life yourself or to use an effective life determined by the Commissioner of Taxation.

    The sort of information you could use to make an estimate of effective life of an asset is listed in the Guide to depreciating assets 2016.

    In making his determination, the Commissioner assumes the depreciating asset is new and has regard to general industry circumstances of use.

    There are various Taxation Rulings made by the Commissioner regarding how to determine the effective life expectancy of depreciating assets:

    Because the Commissioner often reviews the determinations of effective life, the determined effective life may change from the beginning of, or during, an income year. You need to work out which Taxation Ruling, or which schedule accompanying the relevant Taxation Ruling to use for a particular asset’s determined effective life.

    As a general rule, use the ruling or schedule that is in force at the time you:

    • entered into a contract to acquire the depreciating asset
    • otherwise acquired it, or
    • started to construct it.

    Immediate deduction for certain non-business depreciating assets costing $300 or less

    The decline in value of certain depreciating assets costing $300 or less is their cost. This means you get an immediate deduction for the cost of the asset to the extent that you use it to produce assessable income, including rental income, during the income year in which the deduction is available.

    The immediate deduction is available if all of the following tests are met in relation to the asset:

    • it cost $300 or less
    • you used it mainly for the purpose of producing assessable income that was not income from carrying on a business (for example, rental income where your rental activities did not amount to the carrying on of a business)
    • it was not part of a set of assets costing more than $300 that you started to hold in the income year
    • it was not one of a number of identical, or substantially identical, assets that you started to hold in the income year that together cost more than $300.

    If you hold an asset jointly with others and the cost of your interest in the asset is $300 or less, you can claim the immediate deduction even though the total cost of the asset was more than $300; see Partners carrying on a rental property business.

    Example 21: Immediate deduction

    In November 2015, Terry purchased a toaster for his rental property at a cost of $70. He can claim an immediate deduction as he uses the toaster to produce rental income, provided he is not carrying on a business from the rental activity.

    Example 22: No immediate deduction

    Paula is buying a set of four identical dining room chairs costing $90 each for her rental property. She cannot claim an immediate deduction for any of these because they are part of a set of assets, and the total cost is more than $300.

    End of example

    For more information about immediate deductions for depreciating assets costing $300 or less, see the Guide to depreciating assets 2016.

    Low-value pooling

    You can allocate low-cost assets and low-value assets relating to your rental activity to a low-value pool.

    A low-cost asset is a depreciating asset that costs less than $1,000 as at the end of the income year in which you start to use it, or have it installed ready for use, for a taxable purpose.

    A low-value asset is a depreciating asset that is not a low-cost asset but which on 1 July for the current year (1 July 2015) had been written off to less than $1,000 under the diminishing value method.

    If you hold an asset jointly and the cost of your interest in the asset or the opening adjustable value of your interest is less than $1,000, you can allocate your interest in the asset to your low-value pool.

    Once you choose to create a low-value pool and allocate a low-cost asset to it, you must pool all other low-cost assets you start to hold from that time on.. However, this does not apply to low-value assets. You can decide whether to allocate low-value assets to the pool on an asset-by-asset basis.

    Once you have allocated an asset to the pool, it remains in the pool.

    Once an asset is allocated to a low-value pool it is not necessary to work out its adjustable value or decline in value separately. Only one annual calculation for the decline in value for all of the depreciating assets in the pool is required.

    You work out the deduction for the decline in value of depreciating assets in a low-value pool using a diminishing value rate of 37.5%.

    For the income year you allocate a low-cost asset to the pool, you work out its decline in value at a rate of 18.75%, or half the pool rate. Halving the rate recognises that assets may be allocated to the pool throughout the income year and eliminates the need to make separate calculations for each asset based on the date it was allocated to the pool.

    When you allocate an asset to the pool, you must make a reasonable estimate of the percentage that you will use it to produce your assessable income, including rental income, over its effective life. For a low-cost asset, you estimate the effective life when you acquire it. For a low-value asset, you estimate the effective life remaining at the start of the income year in which it was allocated to the pool. This percentage is known as the asset’s taxable use percentage.

    It is this taxable use percentage of the cost or opening adjustable value that is written off through the low-value pool.

    For more information about low-value pooling, including how to treat assets used only partly to produce assessable income, including rental income, and how to treat the disposal of assets from a low-value pool, see the Guide to depreciating assets 2016. You can work out your deductions for assets you allocate to a low-value pool using the Depreciation and Capital Allowances Tool (DCAT)

    If you are an individual who owns or jointly owns a rental property, you claim your low-value pool deduction for rental assets as a ’Low-value pool deduction’ on your tax return, and you do not take this deduction into account in the amount you show at 'Rent’ on your tax return.

    What happens if you no longer hold or use a depreciating asset?

    If you cease to hold or to use a depreciating asset, a balancing adjustment event will occur. If there is a balancing adjustment event, you need to work out a balancing adjustment amount to include in your assessable income or to claim as a deduction.

    A balancing adjustment event occurs for a depreciating asset if:

    • you stop holding it, for example, if the asset is sold, lost or destroyed
    • you stop using it and expect never to use it again
    • you stop having it installed ready for use and you expect never to install it ready for use again
    • you have not used it and decide never to use it, or
    • a change occurs in the holding or interests in an asset which was or is to become a partnership asset.

    You work out the balancing adjustment amount by comparing the asset’s termination value (such as the proceeds from the sale of the asset) and its adjustable value at the time of the balancing adjustment event. If the termination value is greater than the adjustable value, you include the excess in your assessable income. If you are an individual who owns or has co-ownership of a rental property, you show the assessable amount as Other income on your tax return and do not take it into account in the amount you show at Rent.

    If the termination value is less than the adjustable value, you can deduct the difference.

    For more information about balancing adjustments, see the Guide to depreciating assets 2016.

    If a balancing adjustment event happens to a depreciating asset that you used at some time other than for income-producing purposes (for example, privately) then a capital gain or capital loss might arise to the extent that you so used the asset. You can work out balancing adjustments using the Depreciation and Capital Allowances Tool (DCAT) available on ato.gov.au

    For more information about capital gains tax and depreciating assets see the Guide to depreciating assets 2016.

    Purchase and valuation of second-hand assets

    If you purchase a second-hand asset you can generally claim a deduction based on the cost of the asset to you.

    Where you pay an amount for a depreciating asset and something else, only that part that is reasonably attributable to the depreciating asset is treated as being paid for.

    Where you purchase a rental property from an unrelated party, one objective means of establishing your cost of depreciating assets acquired with the property is to have their value, as agreed between the contracting parties, specified in the sale agreement. If the sale agreement for your property does not specify separate values for the depreciating assets, you will need to work out a reasonable cost for the assets to determine your claim for depreciation.

    You can do this yourself or you may wish to use a qualified valuer. Any valuation methodology used to work out the cost of the depreciating assets must be able to demonstrate a reasonable basis for that value having regard to the market value of the asset and the overall cost of the property.

    Example 23: Valuation of second-hand assets

    The Sullivans purchase a rental property with a 6 year old gas hot water system. It is reasonable to apply the Commissioner’s effective life determination of 12 years (for gas hot water systems) and treat the asset as having 6 years remaining effective life. If the system cost $1,200 new, it is reasonable to estimate the value of the hot water system was $600 at the time of purchasing the rental property. Therefore, in working out how much they can claim for the decline in value of the hot water system, the Sullivans use $600 as its cost.

    End of example

    Apportionment of values between various assets affects the cost base of the property which is subject to capital gains tax. Amounts allocated to the cost of depreciating assets on the purchase of the rental property are subtracted from the purchase price, in order to arrive at the CGT cost base of the rental property.

    Working out your deductions for decline in value of depreciating assets

    Following are two examples of working out decline in value deductions. The Guide to depreciating assets 2016 contains two worksheets (Worksheet 1: Depreciating assets and Worksheet 2: Low-value pool) that you can use to work out your deductions for decline in value of depreciating assets. Alternatively, you can work out your deductions using the Depreciation and Capital Allowances Tool (DCAT) available at ato.gov.au

    Example 24: Working out decline in value deductions

    In this example, the Hitchmans bought a property part way through the year, on 20 July 2015. In the purchase contract, depreciating assets sold with the property were assigned separate values that represented their market values at the time. The Hitchmans could use the amounts shown in the contract to work out the cost of their individual interests in the assets. They can each claim deductions for decline in value for 347 days of the 2015–16 income year. If the Hitchmans use the assets wholly to produce rental income, the deduction for each asset using the diminishing value method is worked out as shown below:

    Description

    Cost of the interest in the asset

    Base value

    No. of days held, divided by 365

    200% divided by effective life

    (yrs)

    Deduction for decline in value

    Adjustable value at end of 2015-16 income year

    Furniture

    $2,000

    $2,000

    347
    365

    200%
    13 1/3

    $285

    $1,715

    Carpets

    $1,200

    $1,200

    347
    365

    200%
    10

    $228

    $972

    Curtains

    $1,000

    $1,000

    347
    365

    200%
    6

    $317

    $683*

    Totals

    $4,200

    $4,200

     

     

    $830

    $3,370

    * As the adjustable values of the curtains and the carpets at the end of the 2015–16 income year are less than $1,000, either or both of the Hitchmans can choose to transfer their interest in the curtains and the carpets to their low-value pool for the following income year (2016–17).

    End of example

     

    Example 25: Decline in value deductions, low-value pool

    In the 2015–16 income year the Hitchmans’ daughter, Leonie, who owns a rental property in Adelaide, allocated to a low-value pool some depreciating assets she acquired in that year. The low-value pool already comprised various low-value assets. Leonie expects to use the assets solely to produce rental income.

     

    Taxable use percentage of cost or opening adjustable value

    Low-value pool rate

    Deduction for decline in value in 2015–16

    Low-value assets:

    Various

    $1,679

    37.5%

    $630

    Low-cost assets:

    Television set
    (purchased 11/11/2015)

    $747

     

     

    Gas heater
    (purchased 28/2/2016)

    $303

     

     

    Total low-cost assets

    $1,050

    18.75%

    $197

    Total deduction for decline in value for year ended 30 June 2016

     

     

    $827

    Closing pool value at 30 June 2016

    Low-value assets: $1,679 –$630

    =

    $1,049

    Low-cost assets: $1,050 – $197

    =

    $853

     

    =

    $1,902

     

    End of example

    Capital works deductions

    You can deduct certain kinds of construction expenditure. In the case of residential rental properties, the deductions would generally be spread over a period of 25 or 40 years. These are referred to as capital works deductions. Your total capital works deductions cannot exceed the construction expenditure. No deduction is available until the construction is complete.

    Deductions based on construction expenditure apply to capital works such as:

    • a building or an extension, for example, adding a room, garage, patio or pergola
    • alterations, such as removing or adding an internal wall
    • structural improvements to the property, for example, adding a gazebo, carport, sealed driveway, retaining wall or fence.

    You can only claim deductions for the period during the year that the property is rented or is available for rent.

    Where the rental property is destroyed, for example by fire, and results in a total loss of the asset, you can deduct an amount in the income year in which the capital works are destroyed for all of your construction expenditure that has not yet been deducted. However, you must reduce this deduction by any insurance and salvage receipts.

    If however, using the same example above, during an income year the building is affected by fire and the building cannot be rented or made available for rent but it is expected to be made available for rent again, then the owners cannot claim a deduction for capital works for the number of days that the building is not available for rent.

    If you can claim capital works deductions, the construction expenditure on which those deductions are based cannot be taken into account in working out any other types of deductions you claim, such as deductions for decline in value of depreciating assets.

    Amount of deduction

    The amount of the deduction you can claim depends on the type of construction and the date construction started.

    Table 1 below shows you the types of rental property construction that qualify. If the type of construction you own (or own jointly) does not appear next to the relevant ‘date construction started’ in the Table, you cannot claim a deduction. If the type of construction qualifies, Table 2 shows the rate of deduction available.

    Table 1

    Date construction started

    Type of construction for which deduction can be claimed

    Before 22 August 1979

    None

    22 August 1979 to
    19 July 1982

    Certain buildings* intended to be used on completion to provide short-term accommodation to travellers**

    20 July 1982 to
    17 July 1985

    Certain buildings* intended to be used on completion to provide short-term accommodation to travellers**

    Building intended to be used on completion for non-residential purposes (for example, a shop or office)

    18 July 1985 to
    26 February 1992

    Any building intended to be used on completion for residential purposes or to produce income

    27 February 1992 to
    18 August 1992

    Certain buildings* intended to be used on completion to provide short-term accommodation to travellers**

    Any other building intended to be used on completion for residential purposes or to produce income

    Structural improvements intended to be used on completion for residential purposes or to produce income

    19 August 1992 to
    30 June 1997

    Certain buildings* intended to be used on completion to provide short-term accommodation to travellers**

    Any other building intended to be used on completion for residential purposes or to produce income

    Structural improvements intended to be used on completion for residential purposes or to produce income

    Environment protection earthworks** intended to be used on completion for residential purposes or to produce income

    After 30 June 1997

    Any capital works used to produce income (even if, on completion, it was not intended that they be used for that purpose)

    *‘Certain buildings’ are apartment buildings in which you own or lease at least 10 apartments, units or flats; or a hotel, motel or guest house that has at least 10 bedrooms.

    **For more information, phone 13 28 66.

    Table 2

    Date construction started

    Rate of deduction per income year

    Before 22 August 1979

    nil

    22 August 1979 to 21 August 1984

    2.5%

    22 August 1984 to 15 September 1987

    4%

    After 15 September 1987

    2.5%

    Where construction of a building to provide short-term accommodation for travellers commenced after 26 February 1992, the rate of deduction was increased to 4%.

    For apartment buildings, the 4% rate applies to apartments, units or flats only if you own or lease 10 or more of them in the building.

    The deduction can be claimed for 25 years from the date construction was completed in the case of a 4% deduction, and for 40 years from the date construction was completed in the case of a 2.5% deduction. If the construction was completed part of the way through the income year, you can claim a pro-rata deduction for that part.

    Construction expenditure that can be claimed

    Construction expenditure is the actual cost of constructing the building or extension. A deduction is allowed for expenditure incurred in the construction of a building if you contract a builder to construct the building on your land. This includes the component of your payments that represents the profit made by individual tradespeople, builders and architects. If you are an owner/builder, the value of your contributions to the works, for example, your labour and expertise, and any notional profit element do not form part of the construction expenditure.

    If you purchase your property from a speculative builder, you cannot claim the component of your payment that represents the builder’s profit margin as a capital works deduction.

    Some costs that you may include in construction expenditure are:

    • preliminary expenses such as architects’ fees, engineering fees and the cost of foundation excavations
    • payments to carpenters, bricklayers and other tradespeople for construction of the building
    • payments for the construction of retaining walls, fences and in-ground swimming pools.

    Construction expenditure that cannot be claimed

    Some costs that are not included in construction expenditure are:

    • the cost of the land on which the rental property is built
    • expenditure on clearing the land prior to construction
    • earthworks that are permanent, can be economically maintained and are not integral to the installation or construction of a structure
    • expenditure on landscaping.

    Changes in building ownership

    Where ownership of the building changes, the right to claim any undeducted construction expenditure for capital works passes to the new owner. A new owner should confirm that the building was constructed during one of the appropriate periods outlined in table 1. To be able to claim the deduction, the new owner must continue to use the building to produce income.

    If the previous owner was allowed capital works deductions, and the capital works started after 26 February 1992, they are required to give you as the new owner information that will enable you to calculate those deductions going forward. Where the property was not previously used to produce assessable income, the owner disposing of the property does not need to provide the purchaser with that information. In this situation the purchaser may obtain an estimate from a professional. For more information, see Estimating construction costs.

    For more information about providing a notice or certificate, see Subsection 262A(4AJA) of Income Tax Assessment Act 1936.

    Estimating construction costs

    Where a new owner is unable to determine precisely the construction expenditure associated with a building, an estimate provided by an appropriately qualified person may be used. Appropriately qualified people include:

    • a clerk of works, such as a project organiser for major building projects
    • a supervising architect who approves payments at stages of projects
    • a builder who is experienced in estimating construction costs of similar building projects
    • a quantity surveyor.

    Unless they are otherwise qualified, valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications nor the experience to make such an estimate.

    Example 26: Estimating capital works deductions

    The Perth property acquired by the Hitchmans on 20 July 2015 was constructed in August 1991. At the time they acquired the property it also contained the following structural improvements.

    Item

    Construction date

    Retaining wall

    September 1991

    Concrete driveway

    January 1992

    In-ground swimming pool

    July 1992

    Protective fencing around the pool

    August 1992

    Timber decking around the pool

    September 1992

    In a letter to the Hitchmans, a supervising architect estimated the construction cost of the rental property for capital works deduction purposes at $115,800. This includes the cost of the house, the in-ground swimming pool, the protective fencing and the timber decking. Although the retaining wall and the concrete driveway are structural improvements, they were constructed before 27 February 1992 (In table 1, structural improvements qualified for deduction from 27 February 1992). Therefore, they do not form part of the construction cost for the purposes of the capital works deduction and were not included in the $115,800 estimate.

    The Hitchmans can claim a capital works deduction of 2.5% of the construction costs per year. As they did not acquire the property until 20 July 2015, they can claim the deduction for the 347 days from 20 July 2015 to 30 June 2016. The maximum deduction for 2015–16 would be worked out as follows:

    Construction cost

    X

    rate

    X

    portion of year

    =

    deductible amount

    $115,800

    X

    2.5%

    X

    347
    365

    =

    $2,752

     

    End of example

    The cost of obtaining an appropriately qualified person’s estimate of construction costs of a rental property is deductible in the income year it is incurred. You make your claim for the expense, or your share of the expense if you jointly incurred it, at Cost of managing tax affairs on your tax return.

    For more information about construction expenditure and capital works deductions, see:

    Cost base adjustments for capital works deductions

    In working out a capital gain or capital loss from a rental property, the cost base and reduced cost base of the property may need to be reduced to the extent that it includes construction expenditure for which you have claimed or can claim a capital works deduction.

    Cost base

    You must exclude from the cost base of a CGT asset (including a building, structure or other capital improvement to land that is treated as a separate asset for CGT purposes*) the amount of capital works deductions you have claimed or can claim in respect of the asset if:

    • you acquired the asset after 7.30pm (by legal time in the ACT) on 13 May 1997, or
    • you acquired the asset before that time and the expenditure that gave rise to the capital works deductions was incurred after 30 June 1999.

    For information on when a building, structure or other capital improvement to land is treated as a CGT asset separate from the land, see chapter 1 and the section Major capital improvements to a dwelling acquired before 20 September 1985 in the Guide to capital gains tax 2016.

    Reduced cost base

    The amount of the capital works deductions you have claimed or can claim for expenditure you incurred in respect of an asset is excluded from the reduced cost base.

    For more information about whether you can claim certain capital works deductions, see:

    • Taxation Determination TD 2005/47 – Income tax: what do the words ‘can deduct’ mean in the context of those provisions in Division 110 of the Income Tax Assessment Act 1997 which reduce the cost base or reduced cost base of a CGT asset by amounts you ‘have deducted or can deduct’, and is there a fixed point in time when this must be determined? and
    • Law Administration Practice Statement (General Administration) PS LA 2006/1 (GA) – Calculating cost base of CGT asset where there is insufficient information to determine any Division 43 capital works deduction

    Example 27: Capital works deduction

    Zoran acquired a rental property on 1 July 1998 for $200,000. Before disposing of the property on 30 June 2016, he had claimed $10,000 in capital works deductions.

    At the time of disposal, the cost base of the property was $210,250. Zoran must reduce the cost base of the property by $10,000 to $200,250.

    End of example

    Limited recourse debt arrangements

    If expenditure on a depreciating asset (which includes construction expenditure) is financed or refinanced wholly or partly by limited recourse debt (including a notional loan under certain hire purchase or instalment sale agreements of goods), you must include excessive deductions for the capital allowances as assessable income. This will occur where the limited recourse debt arrangement terminates but has not been paid in full by the debtor. Because the debt has not been paid in full, the capital allowance deductions, including capital works deductions, allowed for the expenditure exceed the deductions that would be allowable if the unpaid amount of the debt was not counted as capital expenditure of the debtor. Special rules apply for working out whether the debt has been fully paid.

    If you are not sure what constitutes a limited recourse debt or how to work out your adjustment to assessable income, contact your recognised tax adviser.

    Prepaid expenses

    If you prepay a rental property expense, such as insurance or interest on money borrowed, that covers a period of 12 months or less and the period ends on or before 30 June 2017, you can claim an immediate deduction. A prepayment that does not meet these criteria and is $1,000 or more may have to be spread over two or more years. This is also the case if you carry on your rental activity as a small business entity and have not chosen to deduct certain prepaid business expenses immediately.

    For more information, see Deductions for prepaid expenses

    Keeping records

    General

    You should keep records of both income and expenses relating to your rental property.

    Records of rental expenses must be in English, or be readily translatable into English, and include the:

    • name of the supplier
    • amount of the expense
    • nature of the goods or services
    • date the expense was incurred
    • date of the document.

    If a document does not show the payment date you can use independent evidence, such as a bank statement, to show the date the expense was incurred.

    You must keep records of your rental income and expenses for five years from 31 October or, if you lodge later, for five years from the date you lodge your tax return. If at the end of this period you are in a dispute with us that relates to your rental property, you must keep the relevant records until the dispute is resolved.

    Do not send these records in with your tax return. Keep them in case we ask to see them.

    The following list provides some examples of records you should keep to make it easier to complete your tax return:

    • loan documents
    • receipts for expenses, including repairs, maintenance, insurance and purchases of depreciable assets
    • land tax assessments
    • credit card records
    • tenant leases
    • bank statements
    • rent records from managing agents.

    Worksheet

    The following completed worksheet is an example of how to calculate your net rental income or loss. Some of the figures have been drawn from the examples in this publication; others have been included for illustrative purposes. A blank worksheet is also provided for you to work out your own net rental income or loss.

    Example 28: 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

    259

    Cleaning

    100

    Council rates

    700

    Deductions for decline in value

    796

    Gardening/lawn mowing

    350

    Insurance

    495

    Interest on loans

    11,475

    Land tax

    200

    Legal expenses

    150

    Pest control

    50

    Property agent fees/commission

    800

    Repairs and maintenance

    1,000

    Capital works deductions

    2,745

    Stationery, telephone and postage

    80

    Travel expenses

    436

    Water charges

    350

    Sundry rental expenses

    95

    Total expenses

    20,629

    Net rental income or loss
    ($9,300 – $20,629)

    -11,329

    You cannot claim for these items if the expenditure is already included in body corporate fees and charges.

    End of example

    Rental property worksheet

     

    $

    Income

                                                     

    Rental income

     

    Other rental related income

     

    Gross rent

     

    Expenses

     

    Advertising for tenants

     

    Body corporate fees and charges

     

    Borrowing expenses

     

    Cleaning

     

    Council rates

     

    Deductions for decline in value

     

    Gardening/lawn mowing

     

    Insurance

     

    Interest on loan(s)

     

    Land tax

     

    Legal expenses

     

    Pest control

     

    Property agent fees/commission

     

    Repairs and maintenance

     

    Capital works deductions

     

    Stationery, telephone and postage

     

    Travel expenses

     

    Water charges

     

    Sundry rental expenses

     

    Total expenses

     

    Net rental income or loss
    (Gross rent less total expenses)

     

    You cannot claim for these items if the expenditure is already included in body corporate fees and charges.

    Other tax considerations

    Capital gains tax

    You may make a capital gain or capital loss when you sell (or otherwise cease to own) a rental property that you acquired after 19 September 1985.

    In the case of the sale or other disposal of real estate, the time of the event is normally when you enter into the contract (generally the date on the contract), not when you settle. If there is no contract, the event takes place when the change of ownership occurs. The fact that a contract may be subject to a condition such as finance approval, generally does not affect this date.

    You can also make a capital gain or capital loss from certain capital improvements made after 19 September 1985 when you sell or otherwise cease to own a property you acquired before that date.

    You will make a capital gain from the sale of your rental property to the extent that the capital proceeds you receive are more than the cost base of the property. You will make a capital loss to the extent that the property’s reduced cost base exceeds those capital proceeds. If you are a co-owner of an investment property, you will make a capital gain or loss in accordance with your interest in the property (see Co-ownership of rental property).

    The cost base and reduced cost base of a property includes the amount you paid for it together with certain incidental costs associated with acquiring, holding and disposing of it (for example, legal fees, stamp duty and real estate agent’s commissions). Certain amounts that you have deducted or which you can deduct are excluded from the property’s cost base or reduced cost base. For example, see Cost base adjustments for capital works deductions.

    Your capital gain or capital loss may be disregarded if a rollover applies, for example, if your property was destroyed or compulsorily acquired or you transferred it to your former spouse under a court order following the breakdown of your marriage.

    For more information, see the Guide to capital gains tax 2016.

    Record keeping

    Keeping adequate records of all expenditure will help you correctly work out the amount of capital gain or capital loss you have made when a CGT event happens. You must keep records relating to your ownership and all the costs of acquiring and disposing of property. It will also help to make sure you do not pay more CGT than is necessary.

    You must keep records of everything that affects your capital gains and capital losses. Penalties can apply if you do not keep the records for at least five years after the relevant CGT event. If you use the information from those records in a later tax return, you may have to keep records for longer. If you have applied a net capital loss, you should generally keep your records of the CGT event that resulted in the loss until the end of any period of review for the income year in which the capital loss is fully applied. For more information, see Taxation Determination TD 2007/2 – Income tax: should a taxpayer who has incurred a tax loss or made a net capital loss for an income year retain records relevant to the ascertainment of that loss only for the record retention period prescribed under income tax law?

    You must keep records in English (or be readily accessible or translatable into English) that include:

    • the date you acquired the asset
    • the date you disposed of the asset
    • the date you received anything in exchange for the asset
    • the parties involved
    • any amount that would form part of the cost base of the asset
    • whether you have claimed an income tax deduction for an item of expenditure.
    • For more information about cost base and record-keeping requirements for capital gains tax purposes, see the Guide to capital gains tax 2016.

    Depreciating assets

    If the sale of your rental property includes depreciating assets, a balancing adjustment event will happen to those assets (see What happens if you no longer hold or use a depreciating asset?).

    You should apportion your capital proceeds between the property and the depreciating assets to determine the separate tax consequences for them.

    General value shifting regime

    A loss you make on the sale of a rental property may be reduced under the value shifting rules if, at the time of sale, a continuing right to use the property was held by an associate of yours (for example, a 10-year lease granted to your associate immediately before you enter into a contract of sale). The rules can only apply if the right was originally created on non-commercial terms such that at that time, the market value of the right was greater than what you received for creating it by more than $50,000.

    For more information, see General value shifting regime: who it affects.

    Goods and services tax (GST)

    If you are registered for GST and it was payable in relation to your rental income, do not include it in the amounts you show as income in your tax return.

    Similarly, if you are registered for GST and entitled to claim input tax credits for rental expenses, you do not include the input tax credits in the amounts of expenses you claim. If you are not registered for GST, or the rental income was from residential premises, you include any GST in the amounts of rental expenses you claim.

    For more information, phone 13 28 66.

    Negative gearing

    A rental property is negatively geared if it is purchased with the assistance of borrowed funds and the net rental income, after deducting other expenses, is less than the interest on the borrowings.

    The overall taxation result of a negatively geared property is that a net rental loss arises. In this case, you may be able to claim a deduction for the full amount of rental expenses against your rental and other income (such as salary, wages or business income) when you complete your tax return for the relevant income year. Where the other income is not sufficient to absorb the loss it is carried forward to the next tax year.

    If by negatively gearing a rental property, the rental expenses you claim in your tax return would result in a tax refund, you may reduce your rate of withholding to better match your year-end tax liability.

    If you believe your circumstances warrant a reduction to your rate or amount of withholding, you can apply to us for a variation using the PAYG income tax withholding variation (ITWV) application.

    Pay as you go (PAYG) instalments

    If you make a profit from renting your property, you will need to know about the PAYG instalments system.

    This is a system for paying instalments towards your expected tax liability for an income year. You will generally be required to pay PAYG instalments if you earn $2,000 or more of business or investment income, such as rental income, and the debt on your income tax assessment is more than $500.

    If you are required to pay PAYG instalments we will notify you. You will usually be required to pay the instalments at the end of each quarter. There are usually two options if you pay quarterly instalments:

    • pay using an instalment amount or an instalment rate calculated by us (as shown on your activity statement), or
    • pay an instalment amount or using an instalment rate you work out yourself.

    Depending upon your circumstances, you may be eligible to pay your instalments annually. We will notify you if you are eligible to pay an annual PAYG instalment.

    For more information, see Introduction to pay as you go (PAYG) instalments.

    If you receive payments that are subject to withholding (for example, salary or wages) you can contribute towards your expected tax liability for an income year by increasing your rate or amount of withholding. That way you can avoid having a tax bill on assessment, which means that you may not be required to pay PAYG instalments. To do this, you will need to arrange an upwards variation by entering into an agreement with your payer to increase the rate or amount of withholding. You and your payer will need to complete a PAYG withholding variation application (e-variation).

    Residential rental property assets

    Items that are commonly found in residential rental properties are in Table 3, Table 4, Table 5 and Table 6.

    The tables, based on the principles in Taxation Ruling TR 2004/16 – Income tax: plant in residential rental properties, set out whether an item may be eligible for a capital works deduction or a deduction for decline in value and, for the latter, the Tables include the Commissioner’s determination of effective life. For more information, see Which effective life can you use?

    The tables are provided to give clarity and certainty about the tax treatment of items in residential rental properties. You can use them to assist you to work out which type of deduction you may be able to claim for your items.

    You may be able to claim the deduction indicated in the Tables for items relating to your residential rental property. If you have an item for your residential rental property that is not in the Tables, the principles set out below may help you determine the type of deduction that may be available for it. These principles are more fully discussed in Taxation Ruling TR 2004/16.

    If you are unable to determine the type of deduction available for an item, or you consider that your circumstances are sufficiently different to warrant a different treatment, you may ask us for a private ruling.

    Definitions

    We use the following common terms in table 3, table 4, table 5 and table 6 to describe how or whether items are attached to premises:

    Fixed items are annexed or attached by any means, for example screws, nails, bolts, glue, adhesive, grout or cement, but not merely for temporary stability.

    Freestanding items are designed to be portable or movable. Any attachment to the premises is only for the item’s temporary stability.

    Other than freestanding items are fixed to the premises that are not designed to be portable or movable. The test is not whether the item is removable, even if the attachment is slight, but whether the inherent design and function of the item is such that it is intended to remain in place for a substantial period of time.

    Plant

    The ordinary meaning of plant does not include the setting for income-earning activities. Residential rental properties will invariably be the setting for income-producing activities and so do not fall within the ordinary meaning of plant. Items that form part of the premises are also part of the setting, and therefore not eligible for deductions for their decline in value.

    You should consider the following factors when determining whether an item is part of the premises or setting:

    • whether the item appears visually to retain a separate identity
    • the degree of permanence with which it is attached to the premises
    • the incompleteness of the structure without it
    • the extent to which it was intended to be permanent or whether it was likely to be replaced within a relatively short period.

    None of these factors alone is determinative and they must all be considered together.

    Examples

    Wall and floor tiles are generally fixed to the premises, not freestanding, and intended to remain in place for a substantial period of time. They will generally form part of the premises. Expenditure on these items falls under capital works.

    On the other hand, a freestanding item such as a bookcase may be attached to the structure only for temporary stability. It therefore does not form part of the premises and may qualify for a deduction for decline in value.

    Kitchens are fixed to the premises, are intended to remain in place indefinitely and are necessary to complete the premises. Any separate visual identity they have is outweighed by the other factors. They are therefore part of the premises. Clothes hoists are also part of the premises for similar reasons.

    Insulation batts, although generally not fixed, are intended to remain in place indefinitely, do not have a separate visual identity and add to the completeness of the structure. They are also part of the premises.

    In addition to its ordinary meaning, plant includes articles and machinery.

    Articles

    Plant includes items that are articles within the ordinary meaning of that word. A curtain, a desk and a bookcase would all be considered articles. A structure attached to land, such as a clothes hoist or pergola, would not be considered an article.

    If an item forms part of the premises according to the descriptions above, it is not an article. Therefore, items such as false ceiling panels and insulation batts are not articles while they are in place. However, a painting hung on a wall retains its character as an article.

    Machinery

    Plant also includes items that are machinery, whether or not they form part of the premises. In deciding whether something is machinery you must:

    • identify the relevant unit or units based on functionality
    • decide whether that unit comes within the ordinary meaning of machinery.

    Identify the unit

    Taxation Ruling TR 94/11 – Income tax: general investment allowance – what is a unit of property? provides guidelines to help you identify what is a unit. You need to consider whether a particular item is a unit, part of a larger unit, or whether its components are separate units. A unit will generally be an entity entire in itself; something that has an identifiable, separate function. However, it need not be self-contained or used in isolation and it may vary the performance of another unit. An item is not a unit simply because it is described as a system.

    An item may be made up of several components. To determine what the relevant unit is, you need to consider the function of each component and of the larger composite item. A door handle, for example, is part of the door and not a separate unit. Similarly, a freestanding spa pool that is made up of the shell, skirt, heater, pump, filter and piping is one unit.

    In other cases separate units may work in conjunction with each other to achieve a common objective. For example, a fire safety system may consist of several components including, for example, an indicator board, hydrants, piping, alarms, smoke detectors and sprinklers. All these components function together to form the system. However, each component also performs its own discrete function independent of the others. In this example, each component is a separate unit.

    Is the unit machinery?

    Once you have identified a unit you must decide if it is machinery. The ordinary meanings of machinery and machine do not include anything that is only a reservoir or conduit, even if it is connected to something which is without doubt a machine. Devices that use minute amounts of energy in the form of electrical impulses in various processes, such as microprocessors and computers, come within the ordinary meaning of machine. Appliances for heating, such as stoves, cook tops, ovens and hot-water systems, are also included.

    The components of a system that are separate units and also machinery will be plant, but any ducting, piping or wiring that may be connected to the machine or machines is generally not machinery. However, where the cost of wiring is negligible, such as in small domestic-size systems, the cost may be included in the cost of installation rather than being treated separately. The cost of wiring to connect a typical home security system, for example, may be treated as negligible.

    Which effective life can you use?

    For each of your depreciating assets, you may choose to use:

    • the effective life the Commissioner has determined for such assets, or
    • your own reasonable estimate of its effective life.

    Generally, you may only use the Commissioner’s determination that applied at the time you acquired, or entered into a contract to acquire, your depreciating asset.

    Table 3, table 4, table 5 and table 6 include the effective life that the Commissioner has determined for a number of depreciating assets. For more information about claiming deductions for assets in the Capital works deduction column of tables 3, 4, 5 and 6, see Capital works deductions.

    If the Commissioner has not determined the effective life of a depreciating asset at the time you acquired it, or entered into a contract to acquire it, you may make your own reasonable estimate of its effective life, using the information below. See also the Guide to depreciating assets 2016.

    Working out the effective life yourself

    Generally, the effective life of a depreciating asset is how long it can be used for the purpose of producing income:

    • having regard to the wear and tear you reasonably expect from your expected circumstances of use
    • assuming that it will be maintained in reasonably good order and condition, and
    • having regard to the period within which it is likely to be scrapped, sold for no more than scrap value or abandoned.

    Effective life is expressed in years, including fractions of years. It is not rounded to the nearest whole year.

    The sort of information you could use to make an estimate of effective life of an asset includes:

    • the physical life of the asset
    • engineering information
    • the manufacturer’s specifications
    • your own experience with similar assets
    • the experience of other users of similar assets
    • the level of repairs and maintenance commonly adopted by users of the asset
    • retention periods
    • scrapping or abandonment practices.

    You work out the effective life of a depreciating asset from the asset’s start time, not from the time you first start claiming deductions.

    Can I change an effective life I am using if the Commissioner has determined a new effective life?

    No. You can choose to recalculate a depreciating asset’s effective life only if the effective life you have been using is no longer accurate because of changed circumstances relating to the nature of the asset’s use. A new determination of effective life by the Commissioner does not in itself change the nature of an asset’s use and does not allow you to recalculate an asset’s effective life.

    Residential rental property items

    Treatment as depreciating assets or capital works

    In tables 3, 4, 5 and 6, ‘own estimate’ refers to the fact that, because there was no Commissioner’s determination in effect, you may make an estimate of the effective life in accordance with the principles set out in Working out the effective life yourself.

    Table 3

    Asset

    Deduction for
    decline in value
    (effective life in years)

    Capital works deduction

    Assets acquired before 1 July 2004

    Assets acquired from 1 July 2004

    Assets, general:

     

     

     

    air conditioning assets

    see table 5  

    see table 5

     

    cable trays

     

     

    Yes

    ceiling fans

    own estimate

    5

     

    clocks, electric

    13 1/3

    10

     

    cupboards, other than freestanding

     

     

    Yes

    DVD players

    own estimate

    5

     

    door closers

    own estimate

    10

     

    door locks and latches (excluding electronic code pads)

     

     

    Yes

    door stops, fixed

     

     

    Yes

    door stops, freestanding

    own estimate

    10

     

    electrical assets (including conduits, distribution boards, power points, safety switches, switchboards, switches and wiring)

     

     

    Yes

    escalators (machinery and moving parts)

    see table 4

    see table 4

     

    evaporative coolers

    see table 6

    see table 6

     

    facade, fixed

     

     

    Yes

    floor coverings, fixed (including cork, linoleum, parquetry, tiles and vinyl)

     

     

     

    Yes

    floor coverings (removable without damage):

     

     

     

    carpet

    10

    10

     

    floating timber

    own estimate

    15

     

    linoleum

    10

    10

     

    vinyl

    10

    10

     

    furniture, freestanding

    13 1/3

    13 1/3

     

    garbage bins

    6 2/3

    10

     

    garbage chutes

     

     

    Yes

    garbage compacting systems (excluding chutes)

    6 2/3

    6 2/3

     

    generators

    20

    20

     

    grease traps

     

     

    Yes

    gym assets:

     

     

     

    cardiovascular

    own estimate

    5

     

    resistance

    own estimate

    10

     

    hand dryers, electrical

    10

    10

     

    hand rails

     

     

    Yes

    heaters:

     

     

     

    fixed:

     

     

     

    ducts, pipes, vents and wiring

     

     

    Yes

    electric

    10

    15

     

    fire places (including wood heaters)

     

     

    Yes

    gas:

     

     

     

    ducted central heating unit

    own estimate

    20

     

    other

    own estimate

    15

     

    freestanding

    10

    15

     

    hooks, robe

     

     

    Yes

    hot-water systems (excluding piping):

     

     

     

    electric

    20

    12

     

    gas

    20

    12

     

    solar

    20

    15

     

    hot-water system piping

     

     

    Yes

    insulation

     

     

    Yes

    intercom system assets

    own estimate

    10

     

    lift wells

     

     

    Yes

    lifts (including hydraulic and traction lifts)

    see table 4

    see table 4

     

    lights:

     

     

     

    fittings (excluding hardwired)

    20

    5

     

    fittings, hardwired

     

     

    Yes

    freestanding

    own estimate

    5

     

    shades, removable

    own estimate

    5

     

    linen

    own estimate

    5

     

    master antenna television (MATV) assets:

     

     

     

    amplifiers

    own estimate

    10

     

    modulators

    own estimate

    10

     

    power sources

    own estimate

    10

     

    master antenna television (MATV) assets (excluding amplifiers, modulators and power sources)

     

     

    Yes

    mirrors, fixed

     

     

    Yes

    mirrors, freestanding

    own estimate

    15

     

    radios

    10

    10

     

    ramps

     

     

    Yes

    rugs

    own estimate

    7

     

    safes, fixed

     

     

    Yes

    sanitary fixtures, fixed (including soap dispensers)

     

     

    Yes

    satellite dishes

     

     

    Yes

    screens

     

     

    Yes

    shelving, other than freestanding

     

     

    Yes

    shutters

     

     

    Yes

    signs, fixed

     

     

    Yes

    skylights

     

     

    Yes

    solar-powered generating system assets

    own estimate

    20

     

    stereo systems (incorporating amplifiers, cassette players, compact disc players, radios and speakers)

    own estimate

    7

     

    surround sound systems (incorporating audio-video receivers and speakers)

    own estimate

    10

     

    telecommunications assets:

     

     

     

    cordless phones

    own estimate

    4

     

    distribution frames

     

     

    Yes

    PABX computerised assets

    20

    10

     

    telephone hand sets

    own estimate

    10

     

    television antennas, fixed

     

     

    Yes

    television antennas, freestanding

    own estimate

    5

     

    television sets

    10

    10

     

    vacuum cleaners:

     

     

     

    ducted:

     

     

     

    hoses

    own estimate

    10

     

    motors

    own estimate

    10

     

    wands

    own estimate

    10

     

    portable

    10

    10

     

    vacuum cleaners, ducted (excluding hoses, motors and wands)

     

     

    Yes

    ventilation ducting and vents

     

     

    Yes

    ventilation fans

    own estimate

    20

     

    video cassette recorder systems (VCR)

    own estimate

    5

     

    water pumps

    20

    20

     

    water tanks

     

     

    Yes

    window awnings, insect screens, louvres, pelmets and tracks

     

     

    Yes

    window blinds, internal

    20

    10

     

    window curtains

    6 2/3

    6

     

    window shutters, automatic:

     

     

     

    controls

    own estimate

    10

     

    motors

    own estimate

    10

     

    window shutters, automatic (excluding controls and motors)

     

     

    Yes

    Bathroom assets:

     

     

     

    accessories, fixed (including mirrors, rails, soap holders and toilet roll holders)

     

     

    Yes

    accessories, freestanding (including shower caddies, soap holders, toilet brushes)

    own estimate

    5

     

    exhaust fans (including light/heating)

    own estimate

    10

     

    fixtures (including baths, bidets, tapware, toilets, vanity units and wash basins)

     

     

    Yes

    heated towel rails, electric

    own estimate

    10

     

    shower assets (including doors, rods, screens and trays)

     

     

    Yes

    shower curtains (excluding curtain rods and screens)

    own estimate

    2

     

    spa baths (excluding pumps)

     

     

    Yes

    spa bath pumps

    20

    20

     

    Bedroom assets:

     

     

     

    wardrobes, other than freestanding (incorporating doors, fixed fittings and mirrors)

     

     

    Yes

    Fire control assets:

     

     

     

    alarms:

     

     

     

    heat

    20

    6

     

    smoke

    20

    6

     

    detection and alarm systems:

     

     

     

    alarm bells

    20

    12

     

    cabling and reticulation

     

     

    Yes

    detectors (including addressable manual call points, heat, multi-type and smoke)

    own estimate

    20

     

    fire indicator panels

    20

    12

     

    manual call points (non-addressable)

     

     

    Yes

    doors, fire and separation

     

     

    Yes

    emergency warning and intercommunication systems (EWIS):

     

     

     

    master emergency control panels

    20

    12

     

    speakers

    20

    12

     

    strobe lights

    20

    12

     

    warden intercom phone

    20

    12

     

    extinguishers

    13 1/3

    15

     

    hose cabinet and reels (excluding hoses and nozzles)

     

     

    Yes

    hoses and nozzles

    20

    10

     

    hydrant boosters (excluding pumps)

     

     

    Yes

    hydrants

     

     

    Yes

    lights, exit and emergency

     

     

    Yes

    pumps (including diesel and electric)

    20

    25

     

    sprinkler systems (excluding pumps)

     

     

    Yes

    stair pressurisation assets:

     

     

     

    AC variable speed drives

    own estimate

    10

     

    pressurisation and extraction fans

    own estimate

    25

     

    sensors

    own estimate

    10

     

    water piping

     

     

    Yes

    water tanks

     

     

    Yes

    Kitchen assets:

     

     

     

    cook tops

    own estimate

    12

     

    crockery

    own estimate

    5

     

    cutlery

    own estimate

    5

     

    dishwashers

    own estimate

    10

     

    fixtures (including bench tops, cupboards, sinks, tapware and tiles)

     

     

    Yes

    freezers

    13 1/3

    12

     

    garbage disposal units

    6 2/3

    10

     

    microwave ovens

    6 2/3

    10

     

    ovens

    own estimate

    12

     

    range hoods

    own estimate

    12

     

    refrigerators

    13 1/3

    12

     

    stoves

    20

    12

     

    water filters, electrical

    own estimate

    15

     

    water filters, fixed (attached to plumbing)

     

     

    Yes

    Laundry assets:

     

     

     

    clothes dryers

    own estimate

    10

     

    fixtures (including tapware, tiles and tubs)

     

     

    Yes

    ironing boards, freestanding

    own estimate

    7

     

    ironing boards, other than freestanding

     

     

    Yes

    irons

    own estimate

    5

     

    washing machines

    6 2/3

    10

     

    Outdoor assets:

     

     

     

    automatic garage doors:

     

     

     

    controls

    own estimate

    5

     

    motors

    own estimate

    10

     

    automatic garage doors (excluding controls and motors)

     

     

    Yes

    barbecues:

     

     

     

    fixed:

     

     

    Yes

    sliding trays and cookers

    own estimate

    10

     

    freestanding

    own estimate

    5

     

    boat sheds

     

     

    Yes

    bollards, fixed

     

     

    Yes

    car parks, sealed

     

     

    Yes

    carports

     

     

    Yes

    clotheslines

     

     

    Yes

    driveways, sealed

     

     

    Yes

    fencing

     

     

    Yes

    floor carpet (including artificial grass and matting)

    own estimate

    5

     

    furniture, freestanding

    13 1/3

    5

     

    furniture, other than freestanding

     

     

    Yes

    garage doors (excluding motors and controls)

     

     

    Yes

    garden awnings and shade structures, fixed

     

     

    Yes

    gardening watering installations:

     

     

     

    control panels

    own estimate

    5

     

    pumps

    20

    5

     

    timing devices

    own estimate

    5

     

    gardening watering installations (excluding control panels, pumps and timing devices)

     

     

    Yes

    garden lights, fixed

     

     

    Yes

    garden lights, solar

    own estimate

    8

     

    garden sheds, freestanding

    own estimate

    15

     

    garden sheds, other than freestanding

     

     

    Yes

    gates, electrical:

     

     

     

    controls

    own estimate

    5

     

    motors

    own estimate

    10

     

    gates (excluding electrical controls and motors)

     

     

    Yes

    jetties (including boat sheds and pontoons)

     

     

    Yes

    letterboxes

     

     

    Yes

    operable pergola louvres:

     

     

     

    controls

    own estimate

    15

     

    motors

    own estimate

    15

     

    operable pergola louvres (excluding controls and motors)

     

     

    Yes

    paths

     

     

    Yes

    retaining walls

     

     

    Yes

    saunas (excluding heating assets)

     

     

    Yes

    sauna heating assets

    13 1/3

    15

     

    screens, fixed (including glass screens)

     

     

    Yes

    septic tanks

     

     

    Yes

    sewage treatment assets:

     

     

     

    controls

    own estimate

    8

     

    motors

    own estimate

    8

     

    sewage treatment assets (excluding controls and motors)

     

     

    Yes

    spas:

     

     

     

    fixed:

     

     

    Yes

    chlorinators

    13 1/3

    12

     

    filtration (including pumps)

    13 1/3

    12

     

    heaters (electric or gas)

    13 1/3

    15

     

    freestanding (incorporating blowers, controls, filters, heaters and pumps)

    20

    17

     

    swimming pool assets:

     

     

     

    chlorinators

    13 1/3

    12

     

    cleaning

    13 1/3

    7

     

    filtration (including pumps)

    13 1/3

    12

     

    heaters:

     

     

     

    electric

    13 1/3

    15

     

    gas

    13 1/3

    15

     

    solar

    13 1/3

    20

     

    swimming pools

     

     

    Yes

    tennis court assets:

     

     

     

    cleaners

    own estimate

    3

     

    drag brooms

    own estimate

    3

     

    nets

    own estimate

    5

     

    rollers

    own estimate

    3

     

    umpire chairs

    own estimate

    15

     

    tennis court assets, fixed (including fences, lights, posts and surfaces)

     

     

    Yes

    Security and monitoring assets:

     

     

     

    access control systems:

     

     

     

    code pads

    own estimate

    5

     

    door controllers

    own estimate

    5

     

    readers:

     

     

     

    proximity

    own estimate

    7

     

    swipe card

    own estimate

    3

     

    closed circuit television systems:

     

     

     

    cameras

    6 2/3

    4

     

    monitors

    6 2/3

    4

     

    recorders:

     

     

     

    digital

    own estimate

    4

     

    time lapse

    own estimate

    2

     

    switching units (including multiplexes)

    own estimate

    5

     

    doors and screens

     

     

    Yes

    security systems:

     

     

     

    code pads

    6 2/3

    5

     

    control panels

    6 2/3

    5

     

    detectors (including glass, passive infrared, and vibration)

    6 2/3

    5

     

    global system for mobiles (GSM) units

    6 2/3

    5

     

    noise makers (including bells and sirens)

    6 2/3

    5

     

    Table 4

    Asset

    Deduction for decline in value
    (effective life in years)

    Capital works deduction

    Assets
    acquired before 1 January 2003

    Assets acquired from 1 January 2003

    escalators (machinery and moving parts)

    16 2/3

    20

     

    lifts:

     

     

     

    electric

    16 2/3

    30

     

    hydraulic

    20

    30

     

    Table 5

    Asset

    Deduction for decline in value
    (effective life in years)

    Capital works deduction

    Assets acquired before 1 July 2003

    Assets acquired from 1 July 2003

    Air conditioning:

     

     

     

    air conditioning assets (excluding ducting, pipes and vents):

    See air conditioning plant below

     

     

    air handling units

     

    20

     

    chillers:

     

     

     

    Absorption

     

    25

     

    Centrifugal

     

    20

     

    volumetrics (including reciprocating, rotary, screw, scroll):

     

     

     

        air-cooled

     

    15

     

        water-cooled

     

    20

     

    condensing sets

     

    15

     

    cooling towers

     

    15

     

    damper motors (including variable air volume box controller)

     

    10

     

    fan coil units (connected to condensing set)

     

    15

     

    mini split systems up to 20kW (including ceiling, floor and high wall split system)

     

    10

     

    packaged air conditioning units

     

    15

     

    pumps

     

    20

     

    room units

     

    10

     

    air conditioning ducts, pipes and vents

     

     

    Yes

    air conditioning plant:

     

    See Air conditioning assets (excluding ducting, pipes and vents) above

     

    central type (including ducting and vents)

    13 1/3

     

     

    structural alterations and additions associated with the installation of this plant which forms an integral part of it

    100

     

     

    room units

    10

     

     

    solar-energy powered

    13 1/3

     

     

    Table 6

    Asset

    Deduction for decline in value
    (effective life in years)

    Capital works deduction

    Assets acquired before 1 July 2005

    Assets acquired from 1 July 2005

    Evaporative coolers:

     

     

     

    fixed (excluding ducting and vents)

    own estimate

    20

     

    portable

    own estimate

    10

     

    ducting and vents

     

     

    Yes

    More information

    To get any publication in this guide:

    Publications

    Publications referred to in this guide are:

      Last modified: 26 May 2016QC 48221