This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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Some legal expenses incurred in producing your rental income are deductible-such as the cost of evicting a non-paying tenant.
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.
Non-deductible legal expenses may, however, form part of the cost base of your property for capital gains tax purposes. For more information see the publication Guide to capital gains tax. See also Capital gains tax.
In May 2001, the Hitchmans' tenants moved out owing 4 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 incurred for this are fully deductible. The Hitchmans were seeking to recover assessable 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 assessable income in the year of receipt.
Last modified: 18 Jul 2008QC 16578