21 Rent 2018

Did you earn rental income or was your property available for rent?

No	Go to question 22 Bonuses from life insurance companies and friendly societies 2018, or return to main menu Individual tax return instructions 2018.
Yes	Read on.

Do not show at this item:

• a deduction for the decline in value of a low-value pool; show this at item D6 Low-value pool deduction 2018
• foreign source rental income, that is, rental income from properties located outside Australia
• expenses incurred in earning rental income from properties located outside Australia.

Question 20 Foreign source income and foreign assets or property 2018 tells you about income such as rent from properties located outside Australia, and how to take related expenses into account.

Capital gains tax

If you disposed of your property (for example, by selling it, gifting it or transferring it to someone else) in 2017–18, capital gains tax might apply and you must read question 18 Capital gains 2018 and the Guide to capital gains tax 2018.

You need to know

You need to read Rental properties 2018 (NAT 1729) before you can answer this question.

Rental income

This is the full amount of money you earn when you rent out your property (including if you are renting out a room through the sharing economy). You must include any bond money retained in place of rent or kept because of damage to the property requiring repairs. An insurance payout for lost rent or a reimbursement of any rental expenses you claim in 2017–18 or claimed in an earlier year must also be included as income.

Rental expenses

You can claim most expenses relating to your rental property but only for the period your property was rented or available for rent, for example, advertised for rent.

Expenses could include advertising for tenants, bank charges, body corporate fees, borrowing expenses, council rates, decline in value of depreciating assets, gardening and lawn mowing, insurance, land tax, pest control, property agent fees or commissions, repairs and maintenance, stationery, phone and water charges.

If part of your property is used to earn rent, you can claim expenses relating to only that part of the property. You will need to work out a reasonable basis to apportion the claim. You can however, claim 100% of any fees or commissions charged by a sharing economy facilitator or administrator.

Taxation Ruling IT 2167 Income tax: rental properties - non-economic rental, holiday home, share of residence etc cases, family trust cases will give you more details about apportionment.

Residential rental property travel expenses

From 1 July 2017, travel expenses relating to your residential rental property are not deductible unless you are carrying on a business of property investing. As with prior years, these travel expenses cannot be included in calculations of your capital gain or capital loss when you dispose of the property.

If your travel expenses relate to your residential rental property and another income producing activity, you will need to apportion the expenses on a fair and reasonable basis.

For more information, see Rental properties – travel expenses

Prepaid expenses

If you prepaid a rental property expense, such as insurance or interest on money borrowed, that covers a period of 12 months or less and the period ends on or before 30 June 2019, you can claim an immediate deduction. Otherwise, your deduction might have to be spread over two or more years under the prepayment rules if the expense is $1,000 or more.

See also:

• Deductions for prepaid expenses 2018

Co-ownership

If you derived rent jointly (or in common) with another person from a jointly held property where you were not a member of a partnership carrying on a business of renting out properties, include your share of rent and expenses at this item.

If the title deed shows that you were a part owner of the property, include only your share of the rent and expenses on your tax return. For example, if you owned half of the property, you should show half of the rent and claim half of the deductible expenses for the property. Rental properties 2018 (NAT 1729) provides more information on how to work out your share of the rent and expenses that you can claim.

Deductions for decline in value of depreciating assets

You may be able to claim a deduction for the decline in value of certain items, known as depreciating assets, that you acquired as part of the purchase of your property or that you subsequently purchased for your property.

A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Examples of depreciating assets are freestanding furniture, stoves, washing machines and television sets.

Rental properties 2018 (NAT 1729) has a comprehensive list of depreciating assets found in residential rental properties.

Limit on deductions for decline in value of second-hand depreciating assets

From 1 July 2017, you cannot claim a deduction for the decline in value of certain second-hand depreciating assets in your residential rental property unless you are carrying on a business of property investing.

Second-hand depreciating assets are depreciating assets previously installed ready for use or used:

• by another entity (except as trading stock)
• in your private residence or
• for a non-taxable purpose, unless that use was occasional. For example, staying at the property for one evening while carrying out maintenance activities would be considered an occasional use.

These changes apply to the depreciating assets you contracted to acquire or acquired at or after 7.30pm AEST on 9 May 2017. However, the changes do not apply to the assets you acquired with a new residential property if no other entity was previously entitled to a deduction for a decline in value of these assets, and:

• no one resided in the property before you acquired it, or
• the asset was installed for use or used at this property and you acquired the property within 6 months of it becoming a new residential property.

The changes also apply to the depreciating assets you used or had installed ready for use for any private purpose in 2016–17 or earlier income years if you installed them in your residential rental property after 30 June 2017.

For more information about the limit on deductions for decline in value of second-hand depreciating assets in your residential rental property, including how the new rules apply to the low-value pools, see Rental properties 2018.

Guide to depreciating assets 2018 (NAT 1996) and Rental properties 2018 (NAT 1729) will help you understand the rules for working out your deduction for decline in value and other aspects of rental property ownership. The guide also contains details of the immediate deductions for assets.

If you choose the low-value pool method to calculate the decline in value of low-cost and low-value assets, read question D6 Low-value pool deduction 2018 and claim your low-value pool deduction there.

Capital works deductions

You may be able to claim a deduction for the construction costs of your property over a 25-year or 40-year period, called a capital works deduction.

You can claim a deduction if:

• construction began after 17 July 1985 and the property is used for residential accommodation
• construction began after 19 July 1982 and the property is not used for residential accommodation (for example, a shop), or
• construction began after 21 August 1979, the property is used to provide short-term accommodation for travellers and it meets certain other criteria.

A deduction may also be available for structural improvements made to parts of the property other than the building if work began after 26 February 1992. Examples include sealed driveways, fences and retaining walls.

The deduction does not apply until completion of the construction. The deduction is at the rate of 2.5% or 4% (adjusted for part-year claims) depending on the date the capital works began. Rental properties 2018 (NAT 1729) will help you determine if you qualify and the appropriate rate.

Thin capitalisation

The thin capitalisation rules might apply if:

• your debt deductions, such as interest (combined with those of your associate entities) for 2017–18 were more than $2,000,000 and
• you were an Australian resident and you (or any associate entities) had certain overseas interests or
• you were a foreign resident.

See also:

• Thin capitalisation

What you need

You will need details of:

• all rental income earned
• interest charged on money you borrowed for the rental property
• other expenses relating to your rental property
• any expenditure on capital works to your rental property.

See also:

• Guide to depreciating assets 2018 (NAT 1996)
• Deductions for prepaid expenses 2018
• Taxation Ruling IT 2167 Income Tax: rental properties – non-economic rental, holiday home, share of residence, etc. cases, family trust cases.

Completing this item

Step 1

Write your share of the total amount of gross rent at P item 21 on page 15 your tax return. Do not show cents.

Step 2

Write your share of the interest expenses that can be claimed as a deduction at Q item 21. Do not show cents.

Step 3

Write your share of the capital works deductions that can be claimed as a deduction at F item 21. Do not show cents.

Step 4

Write your share of the other rental expenses that can be claimed as a deduction (except any low-value pool deduction) at U item 21. Do not show cents.

Step 5

Add up the amounts at Q, F and U item 21. Take away the total from the amount at P item 21. This is your net rent. Write this amount at Net rent item 21. Do not show cents.

Step 6

If your expenses are greater than your gross rent, you have made a rental loss. Print L in the Loss box at the right of Net rent.

Check that you have...

• shown on your tax return your gross rent, interest deductions, capital works deductions, other rental deductions and net rent
• shown only rental income and expenses from properties located in Australia
• printed L in the Loss box if your expenses are greater than your gross rent
• kept information to support your claims.

Where to go next

• Go to question 22 Bonuses from life insurance companies and friendly societies 2018.
• Return to main menu Individual tax return instructions 2018.
• Go back to question 20 Foreign source income and foreign assets or property 2018.

This question is about rental income and rental properties.