21 Rent 2023

Complete question 21 to report your rental property income and claim deductions.

Things you need to know

You need to read Rental properties 2023 before you can answer this question.

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 2023, or return to main menu Individual tax return instructions 2023.
Yes	Read on.

Do not include at this question

Do not show at this question:

• a deduction for the decline in value of a low-value pool; show this at question D6 Low-value pool deduction 2023
• foreign source rental income, that is, rental income from properties located outside Australia; show this at question 20 Foreign source income and foreign assets or property 2023
• expenses incurred in earning rental income from properties located outside Australia; show these at question 20 Foreign source income and foreign assets or property 2023
• income earned, or expenses incurred, from peer-to-peer sharing of your car, caravan or car parking space; show this at question 24 Other income.

Capital gains tax

If you disposed of your property (for example, by selling it, gifting it or transferring it to someone else) in 2022–23, capital gains tax might apply and you must read question 18 Capital gains 2023 and Guide to capital gains tax 2023.

From 1 July 2021, provided certain conditions are met, no capital gains tax event arises when you agree to an eligible arrangement that creates, varies or ends an eligible granny flat interest. The exemption does not apply to other CGT events:

• that happen with such transactions, and
• that do not relate to your granny flat interest’s creation, variation or termination.

Renting out part or all of your home

If you rented out part, or all, of your home, the rent money you received is assessable income. This means:

• you must declare your rental income in your income tax return
• you can claim deductions for associated expenses, such as part or all of the interest on your home loan
• you are not entitled to the full main residence exemption from capital gains tax (CGT), so you'll have to pay CGT on part of any capital gain made when you sell your home.

If you rented out part, or all, of your home at normal commercial rates, the tax treatment of income and expenses is the same as for any residential rental property.

Payments from a family member for board or lodging are considered to be domestic arrangements and are not rental income. You can't claim income tax deductions.

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 question.

If the title deed shows that you were a part owner of the property, include only your share of the rent and expenses in 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 2023 provides more information on how to work out your share of the rent and expenses that you can claim.

Rental income

Rental income is the full amount of money you earn when you rent out your property (including renting out a room through the sharing economy). You must include any bond money you:

• retained in place of rent, or
• kept because of damage to the property requiring repairs.

You must also include as income:

• an insurance payout for lost rent, or a reimbursement of any rental expenses, you claimed in 2022–23 or in an earlier year
• fees retained from cancelled bookings.

Rental expenses

You can claim most expenses relating to your rental property but only for the period your property was rented or genuinely available for rent – for example, advertised for rent without limiting its exposure to potential clients.

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 you were renting only part of your home – for example, a single room – you can claim expenses related to renting out only that part of the house.

You can't claim the total amount of the expenses – you need to apportion the expenses. As a general guide, you should apportion expenses on a floor-area basis based on the area solely occupied by the renter (user), and add that to a reasonable amount based on their access to common areas.

You can claim expenses only for the period the room in your home was rented to a tenant. You can't claim deductions for expenses when the room is not rented.

You can claim 100% of fees or commissions charged by a sharing economy facilitator or administrator.

For more information more about apportionment, see IT 2167 Income Tax: rental properties – non-economic rental, holiday home, share of residence etc cases, family trust cases .

Renting out your holiday home

If you have a holiday home that you rent out, you must include the rent money you received in your assessable income. You can also claim deductions for the associated expenses. In deducting your expenses, you must ensure that you are apportioning expenses to account for any private use of the property. You can only claim expenses for periods that your holiday home was being rented or was genuinely available for rent.

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.

For a comprehensive list of depreciating assets found in residential rental properties, see Rental properties 2023.

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

You can't claim a deduction for the decline in value of certain second-hand depreciating assets you acquired, or contracted to acquire, at or after 7:30 pm AEST on 9 May 2017 for your residential rental property unless you are carrying on a business of letting rental properties.

This does not apply to assets you acquired with a new residential property if:

• no other entity was previously entitled to a deduction for decline in value of these assets

and

• either no one resided in the property before you acquired it

or

• the asset was used, or installed for use, at the property, and
• you acquired the property within 6 months of it becoming a new residential property.

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

• 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.

You cannot claim the decline in value of a depreciating asset that you used, or had installed ready for use, for any private purpose in 2016–17 or earlier, for which you were not entitled to a deduction for a decline in value in 2016–17 (for example, depreciating assets in a property that was your home in 2016–17 that you turned into 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 2023.

Guide to depreciating assets 2023 and Rental properties 2023 will help you understand the rules for working out your deduction for decline in value and other aspects of rental property ownership. Guide to depreciating assets 2023 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 2023 and claim your low-value pool deduction there.

Residential rental property travel expenses

Travel expenses relating to your residential rental property are not deductible unless you are carrying on a business of letting rental properties. They can't 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.

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 2024, you can claim an immediate deduction.

If the expense is $1,000 or more and covers a period that extends beyond 30 June 2024, your deduction might have to be spread over 2 or more years under the prepayment rules.

For more information, see Deductions for prepaid expenses 2023.

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 2023 will help you determine whether you qualify, and the appropriate rate.

Rental deductions for vacant land

From 1 July 2019, you can't claim rental deductions for the cost of holding vacant land, even if you are building or intend to build a rental property.

If your rental property was destroyed by a natural disaster or circumstances beyond your control, you can still claim deductions for the cost of holding the land for 3 years from the time the property was destroyed. You may apply to the Commissioner for an extension to the 3-year limit.

Thin capitalisation

The thin capitalisation rules might apply to disallow a deduction for a portion of your debt deductions if:

• your debt deductions, such as interest (combined with those of your associate entities) for 2022–23 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.

What you need to answer this question

You must have the correct records for the claims that you make. 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
• the period your property was genuinely available for rent (if applicable)
• any expenditure on capital works to your rental property.

If you have redrawn funds or increased your rental property loan for personal use, you can claim interest only on the part of the loan related to the rental property.

Completing your supplementary tax return

To complete this question, follow the steps below.

Step 1

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

Step 2

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

Step 3

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

Step 5

Add up the amounts at question 21 – labels Q, F and U. Take away the total from the amount at question 21 – label P. This is your net rent. Write this amount at Net rent question 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 Net rent.

Check before moving to the next question

Check that you have:

• shown in 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 2023.
• Return to main menu Individual tax return instructions 2023.
• Go back to question 20 Foreign source income and foreign assets or property 2023.

Complete question 21 to report your rental property income and claim deductions.