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Edited version of private ruling
Authorisation Number: 1011522414210
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Ruling
Subject: Rental property expenses
1. Are you entitled to a deduction for a 'leasing fee' paid to a real estate agency in relation to management of your rental property?
Yes.
2. Are you entitled to a deduction for the decline in value expenses relating to your rental property based on the proportion of the price you paid for the depreciating asset?
No.
3. Are you entitled to a deduction for the decline in value expenses relating to your rental property based on the share of your ownership interest in the rental property?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2010
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
You and your spouse own a rental property.
You paid a real estate agency a 'leasing fee' in relation to management of your rental property.
You and your spouse co-own depreciating assets in relation to your rental property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Rental property management fees
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.
The fees incurred by the owner of a rental property for professional management of that rental property are deductible by the owner of the property under section 8-1 of the ITAA 1997 as such fees are incurred in producing assessable rental income.
The full cost of the management fee is deductible in the year the expense is incurred, provided the property is rented, or available for rent, in the year concerned.
Therefore, you can claim a deduction for a 'leasing fee' paid to a real estate agency in relation to management of your rental property.
Deduction for decline in value and calculating the net rental income or loss
Taxation Ruling TR 93/32 sets out the Commissioner's view on the division of income or loss between co-owners of a rental property. The ruling states at paragraph 6 that income and loss from a rental property must be shared according to the legal interest of the owners, despite any agreement between co-owners, either oral or in writing, stating otherwise.
Rental properties 2010 (NAT 1729) sets out in detail how to calculate the net rental income or loss of a rental property. The worksheet on page 22 of Rental properties 2010 shows that in order to calculate the net rental income or loss, you add up the gross rent-related income and then deduct the total expenses.
The total expenses include any deductions for decline in value.
Once you have calculated the net rental income or loss, you apportion it according to the ownership interests in the property. This is the case even if it does not reflect the actual rent received, or expenses paid for, by each owner in relation to the rental property.
Your share of the net rental income or loss is the amount that you declare on your income tax return. You do not claim separate deductions for each expense in relation to the property.