You can claim a deduction for certain expenses you incur for the period your property is rented or is available for rent. However, you cannot claim expenses of a capital nature or private nature (although you may be able to claim decline in value deductions or capital works deductions for certain capital expenditure or include certain capital costs in the cost base of the property for CGT purposes).
Types of rental expenses
There are three categories of rental expenses, those for which you:
- cannot claim deductions
- can claim an immediate deduction in the income year you incur the expense
- can claim deductions over a number of income years
Expenses for which you cannot claim deductions
Expenses for which you are not able to claim deductions include:
- acquisition and disposal costs of the property
- expenses not actually incurred by you, such as water or electricity usage charges borne by your tenants
- expenses that are not related to the rental of a property, such as
- expenses connected to your own use of a holiday home that you rent out for part of the year, or
- costs of maintaining a non-income producing property used as collateral for the investment loan.
Other expenses for which you are not able to claim deductions include:
- travel expenses to inspect a property before you buy it
- expenses incurred in relocating assets between rental properties prior to renting
- expenses for rental seminars about helping you find a rental property to invest in.
You are not entitled to a deduction for travel expenses relating to your residential rental property incurred from 1 July 2017, unless you are:
- using the property in carrying on a business (including the rental property business), or
- an excluded entity. For the meaning of 'excluded entity', see Definitions.
Travel expenses include the costs of travel to inspect, maintain or collect rent for the property, and costs of meals and accommodation related to such travel.
If your travel expenses relating to your residential rental property also relate to another income producing activity, you will need to apportion the expenses on a fair and reasonable basis. For more information, see Apportionment of travel expenses.
From 1 July 2017, you may not claim a deduction for a decline in value of certain second-hand depreciating assets against your residential rental property income unless you are using the property in carrying on a business (including a rental property business), or you are an excluded entity. For more information, see Limit on deductions for decline in value of second-hand depreciating assets.
For more information, see:
Acquisition and disposal costs
You cannot claim a deduction for the costs of acquiring or disposing of your rental property, such as:
- purchase cost of the property
- fees on bank guarantees in lieu of deposits
- conveyancing costs
- advertising expenses
- fees of a buyer’s agent you engage to find you a suitable rental property to purchase, including where the agent recommends a property manager free of charge as an optional or supplementary service
- stamp duty on the transfer of the property (but not stamp duty on a lease of property; see Lease document expenses). However, these costs may form part of the cost base of the property for CGT purposes. See also Capital gains tax.
Example 5: Acquisition costs
The Hitchmans purchased a rental property for $170,000 in July 2017. They also paid surveyor’s fees of $350 and stamp duty of $750 on the transfer of the property. Neither of these expenses is deductible against the Hitchmans’ rental income. However, in addition to the $170,000 purchase price, the incidental costs of $350 and $750 (totalling $1,100) are included in the cost base and reduced cost base of the property.
This means that when the Hitchmans dispose of the property, the cost base or reduced cost base for the purposes of determining the amount of any capital gain or capital loss will be $171,100 ($170,000 + $1,100).
End of exampleFor more information, see Guide to capital gains tax 2018.