travel deductions

Travel deductions to and from rental premises no longer allowed

If you own residential premises that you rent out, you should be aware that you may no longer be able to claim travel deductions connected with trips you make to and from those premises.

Travel expenditure incurred on or after 1 July 2017 in connection with residential premises from which you earn rent or other assessable income will not be deductible (subject to certain exceptions – see below). This includes expenses for travel undertaken to, for example, collect rent, inspect, or maintain the premises.

The measure was originally announced in May as part of the 2017–2018 Federal Budget. We now have legislation that will implement this.

“Travel expenditure includes motor vehicle expenses, taxi or hire car costs, airfares, public transport costs, and any meals or accommodation related to the travel”

Some workplaces require their staff to wear a uniform. Or if you’re a tradie, you will be required to wear steel capped boots, heavy duty protective clothing and other items. You could claim:

  • Uniform
  • Laundry
  • Protective shoes or non-slip shoes
  • Safety equipment and protective clothing
  • Sunglasses and sunscreen.

It does not matter where the residential premises are located. For example, if you travel by car to mow the lawn of a house you rent out, you will not be able to deduct those car expenses. Similarly, if you fly interstate for a couple of days to inspect an apartment you rent out and you stay in a hotel, you will not be able to claim a deduction for your flights, hotel, meals and taxis (eg, to and from the airport or from the hotel to the apartment).

There are a number of exceptions to this, which are as follows:

  • if the expenditure is incurred in carrying on a business (eg, if you own many residential rental premises and you are treated as carrying on a business);

  • if the expenditure is incurred by a company;

  • if the expenditure is incurred by a managed investment trust or a public unit trust;

  • if the expenditure is incurred by a superannuation fund – but this exception does not apply if the fund is a self-managed fund (SMSF), so travel expenditure incurred by an SMSF will not be deductible.

If the residential rental premises are owned by a partnership, the travel expenditure will not be deductible unless all members of the partnership are one of the excluded entities listed above – ie, a company, managed investment trust, public unit trust or superannuation fund that is not an SMSF.

You should also be aware that any travel expenditure that is not deductible will be ignored in working out your capital gain (or loss) should you sell the premises – in other words, the expenditure cannot reduce the capital gain (or increase the loss).

The changes will not prevent you from engaging third parties such as real estate agents to provide property management services for an investment property. These expenses will remain deductible.

Other restrictions

There are two other related measures that were announced in the Federal Budget:

  • limiting depreciation deductions for second-hand depreciating assets used or installed in residential rental premises; and

  • imposing an annual vacancy fee on foreign owners of residential property that is not occupied or genuinely available for rent for at least six months in a 12-month period.

Do you rent out residential premises?

If you rent out residential property that you own, please contact our office for further information on what is deductible from the tax you may owe.


Renting out your holiday home

A holiday home is a common investment for many Australians. Often the holiday home is rented out for part of the year to help finance the cost of owing the property or just to provide an additional source of income. The rent received must be declared in the owner’s tax return as income against which related expenses can be claimed as tax deductions. In this article we cover some of the essentials in claiming holiday home rental expenses.

What can be claimed as a tax deduction?

As with traditional rental properties most expenses incurred in running a holiday home may be deductible. These include:

  • Advertising costs

  • Agents fees and commissions

  • Body corporate fees

  • Council rates

  • Depreciation on assets and buildings

  • Insurance – building/landlord

  • Interest on funds borrowed to acquire the property

  • Land tax

  • Repairs and maintenance

  • Water rates

  • And more

When are these expenses deductible?

The most common mistake when accounting for holiday homes in a tax return is claiming expenses for the entire year.

Expenses are only deductible where the property is rented out or when it is genuinely available for rent even if it is not rented at that time. Therefore, expenses incurred when the property is used for private purposes or while it is not genuinely available for rent are not claimable.

Private purposes include periods where it is used by the owners or the owners’ family or friends for free. Genuinely available for rent means the owner is making a bona fide attempt to rent the property and that it has a realistic chance of being rented. Factors that suggest it is not genuinely available for rent include:

  • Only using advertising that has limited exposure (such as word of mouth)

  • Only making the property available at low demand times (i.e. when it is unlikely to be rented)

  • Poor property condition

  • Poor location and accessibility that make rental unlikely

  • Placing unreasonable conditions on renting the property

  • Asking for an unrealistic rental amount

How to calculate deductions correctly

Where a holiday home is used to genuinely produce rental income during a year, but is also used for private purposes or has periods where it is not genuinely available for rent, expenses must be apportioned. Generally, this is done on a time basis. For instance, where a holiday home is rented for 3 months and not available for rent for the other 9 months, 25% of expenses, representing 3 months out of the entire year, will be deductible.

Expenses that relate directly to rental income such as advertising and agents commission do not need to be apportioned.

Where the holiday home is rented at below market rates to a related party, the deductions for that period are limited to the rental income received in that period.

Is the sale of a holiday home subject to capital gains tax?

In most cases, a holiday home will be subject to capital gains tax. This is because generally the owners will claim the main residence exemption on another property (such as their home). However, in addition to purchase, selling and capital costs, expenses incurred in holding the property that could not be claimed as tax deductions will also reduce any capital gain. These include rates, land taxes, insurance and repairs while the holiday home is not rented or available for rent. For this reason, it is important to keep records for all holiday home expenses for the entire period of ownership.

For more information on this topic, or for assistance with correctly declaring your holiday home, contact our team at Private Wealth Accountants.