You can claim a deduction for most expenses you incur for your rental property in respect of the period it is rented or available for rent in the income year. However, unless specified, you cannot claim expenses of a capital or private nature.
Example 1
Using the worksheet: how to work out your deductible expense for label L - Interest on loans.
Louise took out a loan of $500,000. She used $300,000 (60% of the loan) to purchase a rental property and the remainder, $200,000 (40%), to pay for renovations to her private residence. The interest charged on her loan for the income year was $2,500.
Louise would use the worksheet to help fill out label L of her schedule, Interest on loan(s), as follows:
Step 1
Louise would write the total interest charged on the loan during the income year -$2,500 -in the Total expenses column of the worksheet at row L.
Step 2
Louise would calculate the non-deductible portion of the interest, that is, the portion of interest that relates to the part of the loan she used for private purposes. She used 40% of the loan for private purposes, so 40% of the $2,500 interest is non-deductible, that is, $1,000. Louise would write $1,000 in the Non-deductible expense column on the worksheet at row L.
Step 3
Louise would subtract her non-deductible interest from her total interest (that is, $2,500 - $1,000) and write the resulting amount, $1,500, in the Deductible expense column.
Louise's worksheet for row L would look like this:
Expense categories
|
Total expense
$
|
Non-deductible expense
$
|
Deductible expense
$
|
Label
|
Interest on loan(s)
|
2,500
|
1,000
|
1,500
|
L
|
Step 4
Louise would write $1,500 -the figure in the Deductible expense column of row L of the worksheet -at label L on her Rental property schedule.
(See the apportionment examples in the booklet Rental properties for further guidance on how to work out your deductible expenses.)
End of example