New homeowners are reminded that under recent changes, they cannot claim the cost of inspecting and maintaining rental properties as tax deductible.
As part of changes to residential rental property travel expenses, the change from July 1, 2017 was designed to reduce the pressure of housing affordability in the 2017-18 budget.
What defines a residential premise?
A residential premise, or property, is land or a building that is:
- occupied as a residence or for residential accommodation; and
- intends to be occupied, and is capable of being occupied, as a residence or for residential accommodation.
Under new legislation, homeowners will not be able to claim any deductions for the cost of travel they incur relating to a residential rental property, unless they are carrying on a business of property investing or are an excluded entity.
As with previous years, the travel expenditure cannot be included in the cost base for calculating a homeowner’s capital gain or capital loss when they sell the property.
In the business of property investing
Generally, owning one or several rental properties will not be considered being in the business of rental properties.
The receipt of income by an individual from the letting of property to a tenant, or multiple tenants, will not typically amount to the carrying on of a business as such activities are generally considered a form of investment rather than a business.
What’s an excluded entity?
An excluded entity is a:
- corporate tax entity
- superannuation plan that is not a self-managed superannuation fund
- public unit trust
- managed investment trust
- unit trust or a partnership, all of the members of which are entities of a type listed above.
Example: An individual with residential investment property in 2017-18
Sarah rented out her residential rental property 2017-18. She travelled to the property to repair damages caused by tenants during the year.
As the investment is a residential property, Sarah cannot claim travel expense.
Example: An excluded entity in 2017-18
Terry’s Tyres incurred travel expenses in 2017-18 when the property manager was tasked with inspecting a residential property investment that is currently tenanted. Terry’s Tyres is a corporate tax entity and can claim a deduction for rental travel costs.