Income you must declare as rental income:
What we usually see:
- Rental income is the payment that you received from real-estate agent or tenant.
- Include rental bond as income if:
- Tenant uses rental bond to default on the rent.
- Tenant damaged your property and you deduct the bond for repairs & maintenance.
- Include insurance payout as rental income if the insurance payment is your compensation for lost rent.
- Receive letting or booking fee from tenant, must include as part of your rental income.
- Tenant gives you goods or property as rent instead of money, you also need to include the market value of that goods or property as your rental income.
- Government rebate for the purchase of a depreciating asset eg: solar hot water system.
Is the property genuinely available for rent?
Rental expenses are deductible to the extent that they are incurred for the purpose of producing rental income.
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.
R & M expense vs capital improvement cost:
Repair & maintenance expenses
(to be claimed 100% immediately)
Capital improvement cost:
Repair: replacement or renewal of a worn out or broken part of the property (not the whole part).
Maintenance: preventing or fixing deterioration: painting, oiling a desk or maintaining plumbing.
Repairs after tenant moved out or when the property is no longer rented out
After tenants vacated from Bianca’s house, she discovered few damage in her house such as stove didn’t work, toilet window was broken, hole in the wall. Bianca paid for this damage to be repaired so she could rent out/ sell the property.
*** These deductions are able to claim immediately because they related to the time when tenants were living in the property.
Repairs when the property prior to renting out the property
Chris purchased property on 2/5/2017. First rented out period 19/6/2017 to 2/7/2017 2 weeks in June 2017.
During the period 2/5/2017 to 18/6/2017, he did some repair & maintenance such as:
- Repair the walls, roof, timber: 4 to 6 weeks work
- Cutting down the tree: 25/5/2017
- Remove the waste: 12 -14/5/2017
- Cleaning the house: 17/6/2017
Chris argue that those expenses should be repair & maintenance expenses and claim immediately for him.
**** These expenses cannot claim immediately because it does not occur due to renting out period. It happened prior the renting period and it is an initial repair to make the property suitable for renting. Therefore, these are capital expenses. Client can either
- Claim over a number of year which we call depreciation or
- Leave it and use these costs to work out profit when he/she sell the property.
Capital works deductions
You can deduct certain kinds of construction expenditure. In the case of residential rental properties, the deductions would generally be spread over a period of 25 or 40 years. These are referred to as capital works deductions. Your total capital works deductions cannot exceed the construction expenditure. No deduction is available until the construction is complete. Deductions based on construction expenditure apply to capital works such as:
- a building or an extension, for example, adding a room, garage, patio or pergola
- alterations, such as removing or adding an internal wall, or
- structural improvements to the property, for example, adding a gazebo, carport, sealed driveway, retaining wall or fence.
*** You can only claim deductions for the period during the year that the property is rented or is available for rent.
Travel inspection expenses:
- From 1/7/17, all travel expenses incur relating to a residential property unless it is a business of property investing.
- As with prior year, travel expenditure cannot be include in cost base for CG.
- ATO ref: QC 22093. link