Watch: When can I claim a deduction for rental expenses?
Media: When can I claim a deduction for rental expenses?
https://tv.ato.gov.au/ato-tv/media?v=bd1bdiun85itedExternal Link (Duration: 3:07)
There are three rental expense categories, those for which you:
- can claim a deduction now (in the income year you incur the expense) – for example, interest on loans, council rates, repairs and maintenance and depreciating assets costing $300 or less
- can claim a deduction over several years – for example, capital works, borrowing expenses and the decline in value of depreciating assets
- can't claim a deduction – for example, personal expenses, including expenses arising from your personal use of the property, some expenses of a capital nature and the purchase of second-hand (or used) depreciating assets after 9 May 2017.
There may be some expenses you can claim a deduction for prior to the property being genuinely available for rent – such as interest on loans. You must incur these expenses with the intent to rent out the property. For example, renovating a property you intend to rent. If your intention changes you can't claim your expenses.
It is important to claim each expense under the correct expense type to make sure you treat it correctly for tax purposes.
You will need to work out the amount of the expense that relates to your income-producing activities, if any of the following apply:
- your property is only genuinely available for rent for part of the year
- you use your property for personal purposes for part of the year
- you only use part of your property to earn rent
- you rent your property at non-commercial rates (less than market rates)
- you partially use your investment loan for personal purposes.
You may need to decide which of your expenses are private in nature. For example, if you only rent out part of your property you should work out your expenses on a floor-area basis, based on the area solely occupied by the tenant. You can add to that a reasonable amount based on the tenant's access to common areas. For other examples, see the Rental properties guide.
You don't need to apportion expenses that relate solely to renting out the property, such as advertising for tenants and real estate commissions. These are fully deductible in the year they are incurred.
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 renting out 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. If your other income is not enough to absorb the loss, you can carry forward your loss to the next income year.
Find out about changes to expenses you can claim below.
Deductions for vacant land
In most cases, you can no longer claim a deduction for the cost of holding vacant land. For more information, see Deductions for vacant land.
When you hire a contractor for services and repairs connected with your rental property, you will need to check they have an Australian business number (ABN). If they do not provide you with their ABN, you may have to withhold 47% from the payment you make to them and transfer that withheld amount to us.
You may not be able to claim deductions for these expenses if you don't withhold when you were required to.
You include rental expenses you can claim a deduction for in your tax return. Depending on your situation, you will first need to select (in myTax):
- 'You had Australian interest, or other Australian income or losses from investments or property'
- 'Other foreign income' from overseas property.
Once you have completed the rental property details and the related income fields, you can add your expenses in the 'Rental expenses' fields. If you co-own your rental property with someone, rental income and expenses must be attributed to each co-owner according to your legal interest in the property.
Watch: How to include rental income and expenses in myTax
Media: How to include rental income and expenses in myTax
https://tv.ato.gov.au/ato-tv/media?v=bd1bdiubtjsfhwExternal Link (Duration: 1:56)