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  • Rental expenses to claim

    You can claim a deduction for your related expenses for the period your property is rented or is available for rent.

    If you use your property for both private and income-producing purposes, you can only claim a deduction for the portion of any expenditure that relates to the income-producing use.

    On this page:

    Types of rental expenses

    There are three main types of rental expenses:

    This video explains when you can claim a deduction for rental property expenses.

    Media: [When can I claim a deduction for rental expenses]
    http://tv.ato.gov.au/ato-tv/media?v=bd1bdiun85itedExternal Link(Duration: 03:07)

    Property rented or genuinely available for rent

    If you use your property for both private and income-producing purposes, you can only claim a deduction for the portion of any expenditure that relates to the income-producing use. You can only claim expenses for periods when the property is rented out or genuinely available for rent.

    For example, if you have a holiday home or time-share unit, you can't claim a deduction for any expenditure related to those periods when you, your friends or your family used the home or unit for private purposes.

    If you prepay an expense, such as insurance or interest, that covers a period of more than 12 months, you may need to spread your deduction over two or more years.

    You can claim expenses for periods when your property is either:

    • rented out
    • not rented out but is genuinely available for rent, which means
      • the property is advertised, giving it broad exposure to potential tenants
      • considering all the circumstances, tenants are reasonably likely to rent the property.
       

    If these don't apply, it's likely that you can't claim all your expenses as you don't have a genuine intention to earn income from your property.

    We look at factors such as:

    • whether you advertise in ways that limit your exposure to potential tenants – for example, if you only advertise
      • at your workplace, or by word of mouth
      • outside holiday periods, so it is less likely to be rented out
       
    • the location, condition of the property, or accessibility of the property mean 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 and having conditions like no children or no pets.
       
    • you refuse to rent out the property to interested people but you don't give adequate reasons.

    All or 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 your expenses that relates to the rental income.

    As a general guide, apportion your expenses on a floor-area basis – that is, based on the area solely occupied by the tenant, together with a reasonable figure for their access to the general living areas, including garage and outdoor areas if applicable.

    Example

    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 assessable 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 net rent from his property as:

    Gross rent

    (26 weeks × $100) = $2,600

    Less expenses

    ($3,000 × 50%) = $1,500

    Net rent (gross rent less expenses)

    ($2,600 − $1,500) = $1,100

     

    End of example

    Commercial or non-commercial rates

    Letting a property, or part of a property, at less than normal commercial rates – for example, renting to a family member at a reduced rate – may limit the amount of deductions you can claim.

    See also:

    Positive or negative gearing

    Your rental property is 'positively geared' if your deductible expenses are less than the income you earn from the property – that is, you make a profit from your property.

    Your rental property is said to be 'negatively geared' if your deductible expenses are more than the income you earn from the property.

    The overall tax result of a negatively geared property is a net rental loss. 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. If your other income is not enough to absorb the loss, you can carry forward your loss to the next income year.

    See also:

    Last modified: 14 Jun 2019QC 23633