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Edited version of your written advice
Authorisation Number: 5010046429529
Date of advice: 21 February 2018
Ruling
Subject: Rental property – travel expenses
Question
Are you entitled to a deduction for motor vehicle travel expenses incurred in travelling to your rental property?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commenced on
1 July 20XX
Relevant facts
You own a rental property.
You and your partner own the property as joint tenants.
You reside nearby.
You purchased the property specifically for investment purposes.
The property was available for rent on #.
The property was managed by an agent and rent was set and charged at market rate by the agent.
In # the property was extensively damaged by the tenants and they moved out.
The property has remained vacant since and is expected to be available for rent again in the near future.
You attended to various repairs:
The delay in completing the repairs has been due to financial and personal issues.
You travelled to the property consistently three trips per week x # km per week x 52 weeks to attend to repairs and maintenance of the property.
Additional kilometres were travelled to collect supplies, tools and organise tradesmen depending on what job was being completed at the time.
The property was being held for the purpose of producing assessable income.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 28-10
Income Tax Assessment Act 1997 section 28-50
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 except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
Rental property expenses are deductible under section 8-1 of the ITAA 1997 for the period the property is rented or is available for rent. Generally, the cost of travel to inspect or maintain a rental property is an allowable deduction under section 8-1 of the ITAA 1997 as it has been incurred in connection with gaining income from the investment property.
The publication Rental properties 2017 (NAT 1729-6.2017) is a guide to help owners of rental properties determine what expenses are allowable deductions. Page 16 of the guide explains that when a taxpayer travels to inspect or maintain a rental property, they may be able to claim a full deduction for the costs of the travel where the sole purpose of the trip related to the property. However, where the circumstances of the travel include private reasons (such as a holiday) or reasons of a capital nature (such as inspecting a residential property with a view to purchasing the property for income producing purposes) the taxpayer is only entitled to a partial deduction.
Division 28 of the ITAA 1997 sets out the rules for working out your deductions for car expenses with section 28-10 of the ITAA 1997 outlining the application of Division 28 of the ITAA 1997.
There are four statutory methods of calculating deductions under Division 28 of the ITAA 1997 are:
● 'cents per kilometre' method (Subdivision 28-C of the ITAA 1997);
● '12% of original value' method (Subdivision 28-D of the ITAA 1997);
● 'one-third of actual expenses' method (Subdivision 28-E of the ITAA 1997);
There are special eligibility rules required if the '12% of original value' or 'one-third of actual expenses' methods are to be used. You can only use these methods where you have travelled more than 5000 business kilometres in a financial year, or would have travelled more than 5000 business kilometres had you held the car for a full 12 months. Business kilometres are kilometres the car travelled in the course of producing your assessable income and you can calculate them by making a reasonable estimate (section 28-50 of the ITAA 1997).
In your case, you travelled regularly to attend to matters of your rental property. However, due to financial and personal issues there was an extended delay in repairing the property so that it could be made available for rent again.
It is considered that you were travelling in the course of producing assessable income, therefore, you can claim a deduction for business kilometres travelled.
You will need to apportion the expenses for the property which you own as joints tenants with your spouse.
In addition to this you will need to consider the appropriate method available to you under Division 28 of the ITAA 1997 taking into account a reasonable estimate of the business kilometres you travel.