Edited version of private advice

Authorisation Number: 1051660260863

Date of advice: 27 April 2020

Ruling

Subject: Rent and storage expenses

Question

Can you claim a deduction for rent and storage expenses you incurred while your property was being leased?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You sold your main residence and purchased a new residence in 2018.

You intended to move into your new residence, however the property was still under a lease.

You received rental income for leasing the property.

You rented a property to live in while your property was being leased.

You also stored your extra furniture during this time.

You incurred rental and storage expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

You are not entitled to a deduction for the rent and storage expenses you incurred while your property was being leased as these expenses are considered to be private in nature

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature.

As a general rule, the cost of accommodation is not tax deductible, as it is essentially a living expense which is considered to be a private or domestic outgoing.

In Federal Commissioner of Taxation v. Green (1950) 81 CLR 313; (1950) 9 ATD 142; (1950) 4 AITR 471, the court said a taxpayer cannot deduct ordinary living expenses. It is true that such expenses are necessarily incurred if any income is to be earned or otherwise derived, but such expenses would be incurred whether income was earned or otherwise derived or not.

In Federal Commissioner of Taxation v. Charlton (1984) 84 ATC 4415, the taxpayer was a medical practitioner whose family home was in an inner Melbourne suburb. He was employed as a pathologist in the Bendigo Hospital, renting a small flat in Bendigo, staying there from Monday to Friday, and returning to Melbourne at the weekends whenever he could. He sought a deduction for the rent paid for the Bendigo flat for the four months from January to April 1978 on the basis that the flat rental was incurred in gaining or producing his assessable income under the predecessor to Section 8-1 of the ITAA 1997. Crockett J in the Supreme Court of Victoria held that the expenditure on rent for the period from January to April 1978 was dictated by private considerations, namely, the taxpayer's election to live in Melbourne and not in Bendigo where all his income-earning activities were carried out. In these circumstances, a deduction for the rental expenditure was not allowable.

Although your situation differs to the above cases, the principles are relevant and can be applied to your circumstances.

In your case, we accept that you were not able to move into your new residence as it was still under lease, however, the rent and storage expenses you incurred during this time do not have a direct connection to you earning assessable income. The expenditure is also considered to be a private living expense. You are therefore, not entitled to a deduction.