Edited version of your written advice

Authorisation Number: 1051486173581

Date of advice: 28 February 2019

Ruling

Subject: Rental property transport expenses

Question 1

Can you claim a tax deduction for the registration of a trailer used to transport goods and rubbish for the purpose of producing income from your rental property?

Answer: No

Question 2

Can you claim other expenses used in transportation of goods and rubbish to and from the property?

Answer: No

This ruling applies for the following period

Year ending 30 June 2018

Year ending 30 June 2019

The scheme commenced on

1 July 2017

Relevant facts

You run a rental property for students and live within two hours’ drive of it.

You need to transport rubbish from the rental house to your house or the local rubbish tip to dispose of it on a regular basis.

The house has a large number of students which produce more rubbish than can be removed by the local council collection.

You also need to buy supplies for use by the residents of the rental property and transport them to the house.

Nineteen months ago the government ceased the ability to claim travel expenses to a residential property.

You have looked carefully through the legislation and the Government has not changed the ability to claim transportation expenses.

You believe a trailer is not used for travel and carrying rubbish or shopping is clearly not travel and is not covered by the new legislation.

You have amended the way you run the house to reduce the amount of travel you have to do. The transportation of furniture, garbage and shopping supplies are necessary to the running of the student share house.

You believe the Government enacted the legislation in order to stop people making false claims of travel to rental properties.

Yours is a legitimate claim for transport costs, and you believe it was never the intention of the legislation to exclude legitimate transportation costs.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that in order for a loss or outgoing to be deductible, there must be a connection between the expense and the gaining or producing of assessable income. However, you cannot deduct a loss or outgoing that is of a private, capital or domestic nature.

A deduction under this 'general deductions' provision is only allowable if the expense is actually incurred, has the relevant connection with income and meets the substantiation rules.

From 1 July 2017, travel expenses relating to a residential rental property are generally: not deductible, and not recognised in the cost base or reduced cost base of the property for CGT purposes.

Travel expenses are the costs of travel, accommodation and meals, to inspect, maintain or collect rent for the property.

However, you can continue to deduct travel expenses relating to your residential rental property if:

● You are using the property in carrying on a business (including a rental property business), or

● You are an excluded entity, definitions of which may be found on page 35 of the ATO Rental Property Guide 2018.

The Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 carries the amendments which address travel deductions for rental property owners. The Explanatory memorandum that accompanies and provides an explanation of the content of the introduced version (first reading) of the Bill in Parliament.

An example which demonstrates that, for the purposes of rental property deductions for an individual, the meaning of travel and transport are synonymous is found at section 1.37 of the Explanatory Memorandum:

Example 1.3: Travel expenditure incurred in carrying on a business is deductible

Mirela operates a business of leasing holiday flats in Coffs Harbour. She undertakes various tasks such as cleaning, laundry, greeting guests and topping up provisions on a daily basis.

Mirela uses a car to travel between the flats and her garage at home where she keeps her equipment and stock. She uses the logbook method to calculate her travel expenditure.

Her travel expenditure is incurred in the course of carrying on a business for the purpose of producing assessable income and therefore remains deductible.

This example demonstrates that the phrase “topping up provisions on a daily basis” makes it necessary for a person to convey (or “transport”) the provisions to the property.

In order to do this, they would travel with the provisions to the property.

The terms “transport” and “travel” in this context have the same meaning.

The transport is allowable as a deduction when it is expenditure incurred in carrying on a business.

If the individual transporting the provisions is the rental property owner, and is not in the business of rental property investment, then the travel to transport the provisions is not deductible.

A link to the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 is included here:

https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5963

Carrying on a business of property investing

There is an exception in ITAA 1997 paragraph 26-31(1)(b) which ensures that you can continue claiming travel deductions if you carry on a business of property investing or a business of providing retirement living, aged care, student accommodation or property management services.

The question of whether a business is carried on is a question of fact and depends on the circumstances of each case.

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? sets out the factors which are relevant to determining whether a taxpayer carries on a business of primary production for tax purposes. The indicators are no different, in principle, from the indicators as to whether activities of a non-primary production nature in any other area constitute the carrying on of a business.

The courts have held that the following indicators are relevant:

● whether the activities have a significant commercial purpose or character

● the existence of a profit-making purpose and a prospect of profit

● the complexity and magnitude of the undertaking

● whether the activities involve a degree of repetition and regularity

● the size and scale of activities

● whether the activities are systematic and organised, and

● the amount of time, effort and capital employed.

1. Whether a business is carried on must be answered based on a wide survey and the overall impression of the activities. No one indicator is decisive. They must be considered in combination and as a whole.

2. In determining whether you carry on a business of letting residential properties, some of the factors that the Commissioner may consider can include:

● the total number of residential properties that are rented out

● the average number of hours per week you spend actively engaged in managing the rental properties

● the skill and expertise exercised in undertaking these activities, and

● whether professional records are kept and maintained in a business-like manner.

3. Generally, it is more difficult for an individual to demonstrate that they are carrying on a business of property investing than it is for a company. The receipt of income by an individual from the letting of property to a tenant, or multiple tenants, will not typically amount to the carrying on of a business as such activities are generally considered a form of investment rather than a business.

You are not in the business of renting out properties or investing in properties.

See: Residential rental properties - travel expenses

Our guide to Rental Properties 2018 at page 3 also explains these Changes to deductions for travel expenses