Edited version of private advice

Authorisation Number: 1052039543125

Date of advice: 7 October 2022

Ruling

Subject: Rental deductions - storage costs

Question

Are you entitled to a deduction for the expenses incurred in the storage of your furniture and possessions?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are currently overseas.

You have rented out your property while you are overseas.

To rent out the property unfurnished, your furniture and possessions were placed in storage.

You are incurring storage expenses for your furniture and possessions while the property is rented.

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) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income.

For an expense to satisfy the requirements of section 8-1 of the ITAA 1997:

It must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income producing expense (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166).

There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236); and

It is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces their assessable income (Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494 (Hatchett's case); 71 ATC 4184; (1971) 2 ATR 5570.

However, pursuant to section 8-1(2)(b) of the ITAA 1997 you cannot deduct a loss or outgoing under this section to the extent that it is a loss or outgoing of a private nature. Expenditure that is essentially of a private or domestic nature is not deductible on the basis that it cannot satisfy either of the two positive limbs of section 8-1 of the ITAA 1997.

In Hatchett's case, Menzies J held that expenses incurred by a primary school teacher in relation to the submission of theses to gain a Teacher's Higher Certificate were allowable. (125 CLR at 498; 71 ATC at 4186; 2 ATR at 559). His Honour said, "it must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature. In most cases the categories would seem to be exclusive. So, for instance, the payment of medical expenses is of a private nature and is not incurred in gaining assessable income, notwithstanding that sickness would prevent the earning of income."

Although your situation is different to the above case, the principles are relevant.

In your case, notwithstanding the limited demand for furnished rental properties in the area and the resulting inability to store your possessions at the property, you chose to place these items in storage in order to let the property unfurnished. Alternatively, you may have disposed of your furniture and possessions or taken them with you. Accordingly, it is considered that placing your possessions in storage is a personal choice and is unrelated to renting out your property.

Therefore, the storage expenses incurred relate directly to the storage of your personal items and not to the derivation of your rental income. As such, the expenses are considered to be an outgoing of a private nature and not incurred in earning your assessable income.

Accordingly, you are not entitled to a deduction from your assessable income under section 8-1 of the ITAA 1997.