Rental property owners to lose a deduction
New legislation recently tabled in Canberra puts a measure first announced with the last Federal Budget closer to reality. The “housing tax integrity” bill solidifies the government’s intention to deny all travel deductions relating to inspecting, maintaining, or collecting rent for a residential investment property.
Once enacted the measure will apply from July 1, 2017, so will affect returns for the current financial year.
The new measure will mean that travel expenditure incurred relevant to gaining or producing assessable income from residential premises used as residential accommodation will not be deductible. The travel expenditure will also not be recognised in the cost base of the property for CGT purposes.
A taxpayer will be able to continue to deduct travel expenditure if:
- the losses or outgoings are necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income; or
- the taxpayer is an “excluded class of entity”.
The ATO explains these as being:
- a corporate tax entity;
- a superannuation plan that is not an SMSF;
- a public unit trust;
- a managed investment trust; or
- a unit trust or a partnership, all members of which are entities of a type listed above.
The ATO says that its aim is to “improve the integrity of the tax system by addressing concerns that some taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private purposes”.
However, it is also explained that the measure is not intended to affect deductions for institutional investors in residential premises, as “the same integrity concerns do not arise for such investors”.
It should also be noted that the amendments do not affect deductions for travel expenditure incurred in carrying on a business, including where a taxpayer carries on a business of providing property management services.
You might also like to read this Rental income and ‘carrying on a business’.