Did you earn rental income or was your property available for rent?
Go to question 22 Bonuses from life insurance companies and friendly societies 2017, or return to main menu Individual tax return instructions 2017.
Do not show at this item:
- a deduction for the decline in value of a low-value pool; show this at item D6 Low-value pool deduction 2017
- foreign source rental income, that is, rental income from properties located outside Australia
- expenses incurred in earning rental income from properties located outside Australia.
Question 20 Foreign source income and foreign assets or property 2017 tells you about income such as rent from properties located outside Australia, and how to take related expenses into account.
In the 2017 budget, the government announced its intention to:
- disallow the deduction of travel expenses for residential rental property, and
- limit plant and equipment depreciation deductions to outlays actually incurred by you.
These proposed changes would come into effect on 1 July 2017 for your 2017–18 tax return. For more information on the progress of these changes, see New legislation.
Capital gains tax
If you disposed of your property (for example, by selling it, gifting it or transferring it to someone else) in 2016–17, capital gains tax might apply and you must read question 18 Capital gains 2017 and the Guide to capital gains tax 2017.
You need to know
You need to read Rental properties 2017 (NAT 1729) before you can answer this question.
This is the full amount of money you earn when you rent out your property (including if you are renting out a room through the sharing economy). You must include any bond money retained in place of rent or kept because of damage to the property requiring repairs. An insurance payout for lost rent or a reimbursement of any rental expenses you claim in 2016–17 or claimed in an earlier year must also be included as income.
You can claim expenses relating to your rental property but only for the period your property was rented or available for rent, for example, advertised for rent.
Expenses could include advertising for tenants, bank charges, body corporate fees, borrowing expenses, council rates, decline in value of depreciating assets, gardening and lawn mowing, insurance, land tax, pest control, property agent fees or commissions, repairs and maintenance, stationery, phone, water charges, and travel undertaken to inspect the property or to collect the rent.
If part of your property is used to earn rent, you can claim expenses relating to only that part of the property. You will need to work out a reasonable basis to apportion the claim. You can however, claim 100% of any fees or commissions charged by a sharing economy facilitator or administrator.
Gerard's private residence includes a second storey which he rented out. The second storey represents 30% of the total floor area of the house. Gerard also shared the laundry with his tenant. The laundry takes up 10% of the total floor area of the house. If half is a reasonable figure for use of the laundry by the tenant, Gerard can claim 35% of the expenses for the property, that is, 30% + (1/2 × 10%) = 35%.End of example
Taxation Ruling IT 2167 Income tax: rental properties - non-economic rental, holiday home, share of residence etc cases, family trust cases will give you more details about apportionment.
If you prepaid a rental property expense, such as insurance or interest on money borrowed, that covers a period of 12 months or less and the period ends on or before 30 June 2018, you can claim an immediate deduction. Otherwise, your deduction might have to be spread over two or more years under the prepayment rules if the expense is $1,000 or more.
If you derived rent jointly (or in common) with another person from a jointly held property where you were not a member of a partnership carrying on a business of renting out properties, include your share of rent and expenses at this item.
If the title deed shows that you were a part owner of the property, include only your share of the rent and expenses on your tax return. For example, if you owned half of the property, you should show half of the rent and claim half of the deductible expenses for the property. Rental properties 2017 (NAT 1729) provides more information on how to work out your share of the rent and expenses that you can claim.
Deductions for decline in value of depreciating assets
You can claim a deduction for the decline in value of certain items, known as depreciating assets, that you acquired as part of the purchase of your property or that you subsequently purchased for your property.
A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Examples of depreciating assets are freestanding furniture, stoves, washing machines and television sets.
Rental properties 2017 (NAT 1729) has a comprehensive list of depreciating assets found in residential rental properties.
Guide to depreciating assets 2017 (NAT 1996) and Rental properties 2017 (NAT 1729) will help you understand the rules for working out your deduction for decline in value and other aspects of rental property ownership. The guide also contains details of the immediate deductions for assets where the cost (when added to the cost of other substantially identical assets, or assets that make up a set) does not exceed $300. It explains the low-value pool, to which you can allocate depreciating assets costing less than $1,000 (low-cost assets) and depreciating assets written down to less than $1,000 under the diminishing value method (low-value assets).
If you choose the low-value pool method to calculate the decline in value of low-cost and low-value assets, read question D6 Low-value pool deduction 2017 and claim your low-value pool deduction there.
Capital works deductions
You may be able to claim a deduction for the construction costs of your property over a 25-year or 40-year period, called a capital works deduction.
You can claim a deduction if:
- construction began after 17 July 1985 and the property is used for residential accommodation
- construction began after 19 July 1982 and the property is not used for residential accommodation (for example, a shop), or
- construction began after 21 August 1979, the property is used to provide short-term accommodation for travellers and it meets certain other criteria.
A deduction may also be available for structural improvements made to parts of the property other than the building if work began after 26 February 1992. Examples include sealed driveways, fences and retaining walls.
The deduction does not apply until completion of the construction. The deduction is at the rate of 2.5% or 4% (adjusted for part-year claims) depending on the date the capital works began. Rental properties 2017 (NAT 1729) will help you determine if you qualify and the appropriate rate.
The thin capitalisation rules might apply if:
- your debt deductions, such as interest (combined with those of your associate entities) for 2016–17 were more than $2,000,000 and
- you were an Australian resident and you (or any associate entities) had certain overseas interests or
- you were a foreign resident.
What you need
You will need details of:
- all rental income earned
- interest charged on money you borrowed for the rental property
- other expenses relating to your rental property
- any expenditure on capital works to your rental property.
- Guide to depreciating assets 2017 (NAT 1996)
- Deductions for prepaid expenses 2017
- Taxation Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases.
Completing this item
Write your share of the total amount of gross rent at P item 21 on page 15 your tax return. Do not show cents.
Write your share of the interest expenses that can be claimed as a deduction at Q item 21. Do not show cents.
Write your share of the capital works deductions that can be claimed as a deduction at F item 21. Do not show cents.
Write your share of the other rental expenses that can be claimed as a deduction (except any low-value pool deduction) at U item 21. Do not show cents.
Add up the amounts at Q, F and U item 21. Take away the total from the amount at P item 21. This is your net rent. Write this amount at Net rent item 21. Do not show cents.
If your expenses are greater than your gross rent, you have made a rental loss. Print L in the Loss box at the right of Net rent.
Check that you have...
- shown on your tax return your gross rent, interest deductions, capital works deductions, other rental deductions and net rent
- shown only rental income and expenses from properties located in Australia
- printed L in the Loss box if your expenses are greater than your gross rent
- kept information to support your claims.
Where to go next
- Go to question 22 Bonuses from life insurance companies and friendly societies 2017
- Return to main menu Individual tax return instructions 2017
- Go back to question 20 Foreign source income and foreign assets or property 2017