You can claim a deduction for your rental property related expenses for the period your property is rented or is genuinely available for rent.
If you use your property for both private and income-producing purposes, you can only claim a deduction for the portion of any expenses that relate to the income-producing use.
On this page:
- Types of rental expenses
- Property rented or genuinely available for rent
- All or part of your property is used to earn rent
- Commercial or non-commercial rates
- Positive or negative gearing
Types of rental expenses
There are three main types of rental property expenses:
- Rental expenses you can claim now – you can claim these in the same income year, such as interest on loans, council rates, repairs and maintenance.
- Rental expenses you claim over several years – you can claim these expenses over a number of income years, such as depreciation.
- Rental expenses you can’t claim – such as costs your tenant paid, deductions unrelated to your investment property and the cost of travel you incur relating to your residential rental property.
Property rented or genuinely available for rent
You can claim a deduction for rental expenses you incur, if you use your property for income-producing purposes.
You can only claim a portion of your expenses if any of the following apply to you:
- Your property is only genuinely available for rent for part of the year.
- Your property is used for private purposes for part of the year.
- Only part of your property is used to earn rent.
- You rent your property at non-commercial rates.
- Your investment loan is partially used for private purposes.
When you can claim
You can claim expenses for periods when your property is either:
- rented out
- not rented out but is genuinely available for rent, which means
- the property is advertised, giving it broad exposure to potential tenants
- considering all the circumstances, tenants are reasonably likely to rent the property.
If these don’t apply, it’s likely that you can’t claim all your expenses as you don’t have a genuine intention to earn income from your property.
Factors that indicate genuine availability
Property is genuinely available for rent when it is:
- advertised in ways which give it broad exposure to potential tenants
- having regard to all the circumstances, tenants are reasonably likely to rent it.
Factors that may indicate a property isn’t genuinely available for rent include:
- you advertise in ways that limit your exposure to potential tenants – for example, if you only advertise
- at your workplace, or by word of mouth
- outside holiday periods, so it is less likely to be rented out
- the location, condition of the property, or accessibility of the property mean it is unlikely tenants will seek to rent it
- you place unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out, such as
- setting the rent above the rate of comparable properties in the area
- placing a combination of restrictions on renting out the property, such as requiring prospective tenants to provide references for short holiday stays and having conditions like no children or no pets
- you refuse to rent out the property to interested people but you don’t give adequate reasons.
All or part of your property is used to earn rent
If only part of your property is used to earn rent, you can claim only that part of your expenses that relates to the rental income.
As a general guide, apportion your expenses on a floor-area basis – that is, based on the area solely occupied by the tenant, together with a reasonable figure for their access to the general living areas, including garage and outdoor areas if applicable.
Example: Renting out one-third of the area of the residential property
Michael’s private residence includes a self-contained flat. The floor area of the flat is one-third of the area of the private residence. Michael rented out the flat for six months in the year at $100 per week. During the rest of the year, his niece, Fiona, lived in the flat rent free.
The annual mortgage interest, building insurance, rates and taxes for the whole property amounted to $9,000. Using the floor-area basis for apportioning these expenses, one-third ($3,000) applies to the flat. However, as Michael used the flat to produce assessable income for only half of the year, he can claim a deduction for only $1,500 (half of $3,000).
Assuming there were no other expenses, Michael would calculate the net rent from his property as:
|Gross rent||(26 weeks × $100) = $2,600|
|Less expenses||($3,000 × 50%) = $1,500|
|Net rent (gross rent less expenses)||($2,600 − $1,500) = $1,100|
End of example
Property available for part-year rental
If your property is only available to rent for part of the year, you can’t claim a deduction for the portion of any expenses that relates to your private use.
For example, if you have a holiday home or time-share unit, you can’t claim a deduction for any expenses related to those periods when you, your friends or your family used the home or unit for private purposes.
You may need to decide which expenditure is private in nature. For example, council rates paid for a full year would need to be apportioned based on the total time the property was rented out and genuinely available for rent during the year as a proportion of the total year.
However, it may not be appropriate to apportion some of your expenses on the same basis. For example, expenses that relate solely to the renting of your property are fully deductible and you would not apportion them based on the time the property was rented out. Such costs might include:
- real estate agents commissions
- costs of advertising for tenants
- phone calls you make to a tradesperson to fix damage caused by a tenant
- the cost of removing rubbish left by tenants.
Example: Apportionment of expenses where property is rented for part of the year
Dave owns a property in Tasmania. He rents out his property from 1 November 2019 to 30 March 2020, a total of 151 days. He lives alone in the house for the rest of the year.
The council rates are $1,000 per year. He apportions the council rates on the basis of time rented. He calculates this as:
Rental expense × part-year property rented = deductible amount
$1,000 × (151 ÷ 366) = $413
If Dave has to make phone calls to tradespersons to fix damage caused by a tenant, or has any other expenses which relate solely to the renting of his property, he would work out his deduction for these by reasonably estimating the cost of each of these expenses. It would not be appropriate for him to work out his deduction by claiming 151 ÷ 366 of the total expense.End of example
Commercial or non-commercial rates
Letting a property, or part of a property, at less than normal commercial rates – for example, renting to a family member at a reduced rate – may limit the amount of deductions you can claim.
- Holiday apartments in commercial residential properties
- Taxation ruling IT 2167 – Income tax: rental properties – non-economic rental, holiday home, share of residence, etc. cases, family trust cases
Positive or negative gearing
Your rental property is ‘positively geared’ if your deductible expenses are less than the income you earn from the property – that is, you make a profit from your property.
Your rental property is said to be ‘negatively geared’ if your deductible expenses are more than the income you earn from the property.
The overall tax result of a negatively geared property is a net rental loss. In this case, you may be able to claim a deduction for the full amount of rental expenses against your rental and other income – such as salary, wages or business income – when you complete your tax return. If your other income is not enough to absorb the loss, you can carry forward your loss to the next income year.