• 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:

      Last modified: 26 May 2016QC 48221