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Edited version of your written advice
Authorisation Number: 1051459434179
Date of advice: 03 December 2018
Ruling
Subject: Motor vehicle depreciation
Question
Can I claim depreciation for a motor vehicle used to derive income from rental properties?
Answer
No
From 1 July 2017, you are no longer able to claim any deductions for the cost of travel you incur relating to your residential rental property unless you are carrying on a business of letting rental properties or are an excluded entity.
The travel expenditure is also not recognised in the cost base of the property for Capital Gains Tax (CGT) purposes.
This ruling applies for the following period:
30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You own a number of rental properties without mortgages, two of which are in your name and two in the name of your Superannuation Fund.
You do not have an Australian Business Number (ABN) and do not have a registered a business name.
The properties were purchased as investment properties and were available for rent at market rate from the date of purchase on a long-term Landlord/Tenant basis.
The properties are managed and maintained by you without the assistance of a real estate agent or other professionals.
Your car was purchased and altered specifically to carry tools and equipment for the maintenance and repairs to the properties such as:
● Carpentry
● Painting
● Plumbing
● Paving
● Lawn mowing
● Cleaning
● Electrical work
● TV wiring
● Reticulation
● Tree and garden pruning
The vehicle is also used to inspect the properties and collect rental payments.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Depreciation is an income tax deduction that allows the recovery of the cost of wear and tear, deterioration, or obsolescence of certain assets which you use an to earn income.
The Income Tax Assessment Act 1997 was amended to ensure that from 1 July 2017, travel expenses relating to, but not limited to, inspecting, maintaining, or collecting rent for a residential rental property cannot be claimed as deductions by investors.
Travel expenditure would be expected to include motor vehicle expenses, taxi or hire car costs, airfares, public transport costs, and any meals or accommodation related to the travel.
Furthermore, travel expenditure is not recognised in the cost base of the property for capital gains tax (CGT) purposes.
You must be in business to be eligible to claim deductions for travel expenses in relation to rental properties.
For example, you can deduct travel expenditure if:
● the losses or outgoings are necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income; or
● you are an excluded class of entity.
● An excluded class of entity is:
● a corporate tax entity;
● a superannuation plan that is not a self-managed superannuation fund;
● a public unit trust;
● a managed investment trust; or
● a unit trust or a partnership, members of which are entities of a type listed above.
Whether a business is being carried on depends on the facts of the particular case. For example, some indicators that the courts have considered relevant are whether the activity has a significant commercial purpose or character, whether there is repetition and regularity of the activity and whether the activity is better characterised as a hobby or recreational pastime.
Generally, the receipt of income from the letting of real property to tenants does not amount to the carrying on of a business. Therefore, a person who simply owns an investment property or several investment properties, either alone or with other co-owners is usually regarded as an investor who is not carrying on a rental property business. There must be something special about the activity to reach the conclusion that a business is being carried on. This will generally relate to the provision of additional services to the client in a manner that enhances the gross return above investment levels.