Did you earn rental income or was your property available for rent?
Go to question 22 Bonuses from life insurance companies and friendly societies 2019, or return to main menu Individual tax return instructions 2019.
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 2019
- foreign source rental income, that is, rental income from properties located outside Australia; show this at item 20 Foreign source income and foreign assets or property 2019
- expenses incurred in earning rental income from properties located outside Australia; show these at item 20 Foreign source income and foreign assets or property 2019
- income earned, or expenses incurred, from peer-to-peer sharing of your car, caravan or car parking space; show this at item 24 Other income.
You need to know
You need to read Rental properties 2019 before you can answer this question.
What you need
You must have the right records for the claims that you make. 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
- if applicable, the period your property was genuinely available for rent
- any expenditure on capital works to your rental property.
If you have redrawn funds or increased your rental property loan for personal use, you can claim interest only on the part of the loan related to the rental property.
Capital gains tax
If you disposed of your property (for example, by selling it, gifting it or transferring it to someone else) in 2018–19, capital gains tax might apply and you must read question 18 Capital gains 2019 and Guide to capital gains tax 2019.
Renting out part or all of your home
If you rented out part, or all, of your home, the rent money you received is assessable income. This means:
- you must declare your rental income in your income tax return
- you can claim deductions for associated expenses, such as part or all of the interest on your home loan
- you are not entitled to the full main residence exemption from capital gains tax (CGT), so you'll have to pay CGT on part of any capital gain made when you sell your home.
If you rented out part, or all, of your home at normal commercial rates, the tax treatment of income and expenses is the same as for any residential rental property.
If you rented out part, or all, of your home at less than normal commercial rates, you limit the deductions you can claim.
Payments from a family member for board or lodging are considered to be domestic arrangements and are not rental income. You can't claim income tax deductions.
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 2019 provides more information on how to work out your share of the rent and expenses that you can claim.
Rental income is the full amount of money you earn when you rent out your property (including renting out a room through the sharing economy). You must include any bond money you:
- retained in place of rent, or
- kept because of damage to the property requiring repairs.
You must also include as income:
- an insurance payout for lost rent, or a reimbursement of any rental expenses, you claimed in 2018–19 or in an earlier year
- fees retained from cancelled bookings.
You can claim most expenses relating to your rental property but only for the period your property was rented or genuinely available for rent, for example, advertised for rent without limiting its exposure to potential clients.
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 and water charges.
If you were renting only part of your home – for example, a single room – you can claim expenses related to renting out only that part of the house.
You cannot claim the total amount of the expenses – you need to apportion the expenses. As a general guide, you should apportion expenses on a floor-area basis based on the area solely occupied by the renter (user), and add that to a reasonable amount based on their access to common areas.
You can claim expenses only for the period the room in your home was rented to a client. You cannot claim deductions for expenses when the room is not rented.
You can claim 100% of 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% + (50% × 10%) = 35%.End of example
- Income tax requirements
- 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.
Renting out your holiday home
If you have a holiday home that you rent out, you must include the rent money you received in your assessable income. You can also claim deductions for the associated expenses. In deducting your expenses you must ensure that you are apportioning expenses to account for any private use of the property. You can only claim expenses for periods that your holiday home was being rented or was genuinely available for rent.
Deductions for decline in value of depreciating assets
You may be able to 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 2019 has a comprehensive list of depreciating assets found in residential rental properties.
Limit on deductions for decline in value of second-hand depreciating assets
You cannot claim a deduction for the decline in value of certain second-hand depreciating assets you acquired, or contracted to acquire, after 7.30pm AEST on 9 May 2017 in your residential rental property unless you are carrying on a business of property investing.
This does not apply to assets you acquired with a new residential property if:
- no other entity was previously entitled to a deduction for decline in value of these assets
- either no one resided in the property before you acquired it
- or the asset was used, or installed for use, at the property, and
- you acquired the property within six months of it becoming a new residential property.
Second-hand depreciating assets are depreciating assets previously used, or installed ready for use:
- by another entity (except as trading stock)
- in your private residence, or
- for a non-taxable purpose, unless that use was occasional. For example, staying at the property for one evening while carrying out maintenance activities would be considered an occasional use.
You cannot claim the decline in value of a depreciating asset that you used, or had installed ready for use, for any private purpose in 2016–17 or earlier, for which you were not entitled to a deduction for a decline in value in 2016–17 (for example, depreciating assets in a property that was your home in 2016–17 that you turned into your residential rental property after 30 June 2017.
For more information about the limit on deductions for decline in value of second-hand depreciating assets in your residential rental property, including how the new rules apply to the low-value pools, see Rental properties 2019.
Guide to depreciating assets 2019 and Rental properties 2019 will help you understand the rules for working out your deduction for decline in value and other aspects of rental property ownership. Guide to depreciating assets 2019 also contains details of the immediate deductions for 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 2019 and claim your low-value pool deduction there.
Residential rental property travel expenses
Travel expenses relating to your residential rental property are not deductible unless you are carrying on a business of property investing. They cannot be included in calculations of your capital gain or capital loss when you dispose of the property.
If your travel expenses relate to your residential rental property and another income producing activity, you will need to apportion the expenses on a fair and reasonable basis.
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 2020, you can claim an immediate deduction. If the expense covers a period that extends beyond 30 June 2020, your deduction might have to be spread over two or more years under the prepayment rules if the expense is $1,000 or more.
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 2019 will help you determine if you qualify, and the appropriate rate.
The thin capitalisation rules might apply to disallow a deduction for a portion of your debt deductions if:
- your debt deductions, such as interest (combined with those of your associate entities) for 2018–19 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.
Completing this item
Write your share of the total amount of gross rent at P item 21 on page 15 of 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 2019.
- Return to main menu Individual tax return instructions 2019.
- Go back to question 20 Foreign source income and foreign assets or property 2019.