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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private advice

Authorisation Number: 5010066296417

Date of advice: 27 April 2020

Ruling

Subject: Deductions for rental property prepaid expenses

Question

Are you entitled to a deduction for prepaid expenses relating to custodian house and garden care services?

Answer

Yes, general garden maintenance expenses are incurred to maintain the upkeep of your rental property and as such are allowable deductions under section 8-1 of the ITAA 1997.

However as the expenses were prepaid, you will need to apportion the expenses over the eligible service period as per section 82KZM of the ITAA 1936.

Question 2

Are you entitled to a deduction for the prepaid fee relating to a quantity surveyors report in the year it was incurred?

Answer

Yes, the expense in obtaining the quantity surveyors report is considered to be an expense in managing your tax affairs. As per section 25-2 of the ITAA 1997, you are entitled to a deduction for the upfront fee incurred which relates to obtaining the quantity surveyors report in the year that the expense was in incurred.

Question 3

Are you entitled to a deduction for the portion of the prepaid expenses for rental income protection insurance?

Answer

Yes, expenses incurred by a taxpayer in protecting investment income and in managing investments are generally deductible under section 8-1. However as the rental income protection expense is prepaid expense you are not entitled to an outright deduction for the expense incurred in the 2019 financial year. As per section 82KZM of ITAA 1936, you will need to apportion the deduction for the expense over the eligible service period(s).

This ruling applies for the following periods:

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2018

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

During the 2019 financial year, you entered into a contract to purchase a house and land package to be used as an investment property.

You entered into a Customer and Rental Support (CARS) agreement with a company (the company), and the prepaid expenses incurred in relation to the services that the company will provide.

You provided an invoice dated in the 2019 financial year, listing a breakdown of the prepaid expenses as follows:

1.     Custodian House and Garden Care service

·        a minimum of 15 visits per year

·        mow, edge, weed, prune, trim and clean up the front and back yard

·        fertilise of the front yard

·        provide condition updates on the property two times per year

·        liaise with property managers to assist in satisfying garden care

·        the eligible service period for this service will commence from the date of practical completion of the house, and will be for a service period of 12 months.

2.     Custodian Care Programme (Quantity Surveyor report)

·        depreciation assets and capital works figures to be ascertained through inspections with the builder at the laying of the slab, lockup and final stages of construction.

3.     Rental Income Protection Guarantee

·        a guarantee 75% of the market rent for any period the house and land is vacant during the term of the Rental Income Protection.

·        the eligible service period for this service is 52 weeks, the commencement date being 32 weeks after the commencement of construction of the house.

Construction of the house (the property) was completed in the 2020 financial year.

The property will be made available for rent as soon as practical after the handover date.

You are not carrying on a business of renting properties.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1,

Income Tax Assessment Act 1997 Section 25-5, and

Income Tax Assessment Act 1936 Section 82KZM.

 

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