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Edited version of private advice
Authorisation Number: 1051530339791
Date of advice: 18 June 2019
Ruling
Subject: Rental property deductions
Question
Can the travel costs be claimed for in relation to your rental property?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
After 1 July 2017, you incurred travel expenses in relation to your investment properties.
This travel was due to a number of insurance claims, tenant evictions and subsequent court hearings in regard to recouping costs from the tenants. You would meet tradesmen onsite.
Due to the property being repetitively damaged over a period of time, you attended the investment property on a regular basis to meet with the required professionals to repair the damage from the tenants.
All travel was in relation to the damage and was not to inspect the property or collect rent.
You do not carry on a business of letting rental properties.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 26-31
Summary
Based on the information and documentation provided, it is the Commissioner's view that your rental property activities are the leasing of residential properties to receive income from a stream of rental income. The income is not derived from the services you provide, but from the letting of the properties.
Detailed reasoning
Section 8-1 of the Income Tax Assessment Act 1997 (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, or relate to the earning of exempt income.
Under the previous legislation, the full cost of travel to inspect or maintain a rental property had been an allowable deduction under section 8-1 of the ITAA 1997 (if the sole purpose of the travel had been incurred in connection with gaining income from the investment property).
The Treasury Laws Amendment (Housing Tax Integrity) Act 2017 received royal assent on 30 November 2017 to disallow any deductions for cost of travel you incur relating to a residential rental property. The application of the amendment applies to a loss or outgoing incurred and is effective from on or after 1 July 2017.
Section 26-31(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states you cannot deduct a loss or outgoing you incur after 1 July 2017 if:
· it is related to travel,
· it is incurred in gaining or producing your assessable income from the use of residential premises as residential accommodation, and
· it is not necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
Under the new legislation you are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property unless you are carrying on a business in property investing or are an excluded entity.
As you are not carrying on a business in relation to your rental properties and you are not an excluded entity as outlined above you cannot claim deductions for any travel expenses incurred in relation to your rental properties under subsection 26-31(1) of the ITAA 1997.
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