ATO Interpretative Decision
ATO ID 2001/535
Income Tax
Rental property expenses - deductibility of the cost of accommodation when inspecting potential properties for purchase
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the cost of accommodation incurred when inspecting potential rental properties to purchase an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The cost of accommodation is not an allowable deduction under section 8-1 of the ITAA 1997 as it was not incurred in gaining or producing assessable income.
Facts
The taxpayer inspected several rental properties located at an interstate location and subsequently purchased a property as an investment.
The cost of travelling interstate was met by the vendor/marketing agent of the properties, however the taxpayer incurred the cost of accommodation.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.
The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] ALR 785; (1949) 8 ATD 431 the High Court stated that:
For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.
The expenditure must therefore be related to the production of assessable income and not incurred at a point too soon to be deductible as determined by the High Court in FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161.
The cost of accommodation incurred by the taxpayer to inspect potential rental properties for investment is expenditure incurred at a point too soon in gaining or producing assessable income. Accordingly, the cost of accommodation is not deductible under section 8-1 of the ITAA 1997.
Amendment History
| Date of amendment | Part | Comment |
|---|---|---|
| 31 January 2014 | Title, Issue | Amended for clarity. |
| Reasons for Decision, Case References | Amended for style adherence. |
Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
section 8-1
Case References:
Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation
(1949) 78 CLR 47
[1949] ALR 785
(1949) 8 ATD 431
(1971) 45 ALJR 426
(1971) 2 ATR 541
71 ATC 4161
Keywords
Deduction and Expenses
Rental expenses
Rental property
ISSN: 1445-2782
| Date: | Version: | |
| 18 July 2001 | Original statement | |
| You are here | 31 January 2014 | Updated statement |
| 8 July 2016 | Archived |