This is a great question and the ATO are very clear about this:
Rental expenses are deductible to the extent that they are incurred for the purpose of producing rental income.
This is from the ATO’s 2018 Guide on Rental Properties:
Expenses may be deductible for periods when the property is not rented out providing the property is genuinely available for rent – that is:
- the property is advertised in ways which give it broad exposure to potential tenants, and
- having regard to all the circumstances, tenants are reasonably likely to rent it.
The absence of these factors generally indicates the owner does not have a genuine intention to make income from the property and may have other purposes – such as using it or reserving it for private use.
Factors that may indicate a property is not genuinely available for rent include:
- it is advertised in ways that limit its exposure to potential tenants – for example, the property is only advertised
– at your workplace
– by word of mouth
– outside annual holiday periods when the likelihood of it being rented out is very low
- the location, condition of the property, or accessibility to the property, mean that it is unlikely tenants will seek to rent it
- you place unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out such as
– setting the rent above the rate of comparable properties in the area
– placing a combination of restrictions on renting out the property
– such as requiring prospective tenants to provide references for short holiday stays as well as having conditions like ‘no children’ and ‘no pets’.
- you refuse to rent out the property to interested people without adequate reasons.
Property available for part-year rental
If you use your property for both private purposes and to produce rental income, you cannot claim a deduction for the portion of any expenditure that relates to your private use.
Examples of properties you may use for both private and rental purposes are holiday homes and time-share units.
In cases such as these you cannot claim a deduction for any expenditure incurred for those periods when the home or unit was not available for rent
– including when it was used by you, your relatives or your friends for private purposes.
In some circumstances, it may be easy to decide which expenditure is private in nature. For example, council rates paid for a full year would need to be apportioned based on the total time the property was rented out and available for rent during the year as a proportion of the total year.
Jason Gwerder
Friday, 7 December 2018
