Friday, August 07 2015
There may be situations where not all your expenses are deductible and you need to work out the deductible portion. To do this you subtract any non-deductible expenses from the total amount you have for each category of expense; what remains is your deductible expense.
Situations where you will need to apportion your expenses include:
- your property is available for rent for only part of the year
- only part of your property is used to earn rent, or
- you rent your property at non-commercial rates.
Property available for part-year rental
If you use your property for both private and assessable income-producing purposes, you cannot claim a deduction for the portion of any expenditure that relates to your private use. Holidays homes and time share units are common examples.
In cases such as these you cannot claim a deduction for any expenditure incurred for those periods when the home or unit 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 on a time basis according to private use and assessable income producing use where a property is used for both purposes during the year.
In other circumstances, where you are not able to specifically identify the direct cost, your expenses will need to be apportioned on a reasonable basis.
Only part of your property is used to earn rent
If only part of your property is used to earn rent, you can claim only that part of the expenses that relates to the rental income.
As a general guide, apportionment should be made on a floor area basis - that is, by reference to the floor area of that part of the residence solely occupied by the tenant, together with a reasonable figure for tenant access to the general living areas, including garage and outdoor areas.
Apportionment of travel expenses
Where travel related to your rental property is combined with a holiday or other private activities, you may need to apportion the expenses. If you travel to inspect your rental property and combine this with a holiday, you need to take into account the reasons for your trip.
If the main purpose of your trip is to have a holiday and the inspection of the property is incidental to that main purpose, you cannot claim a deduction for the cost of the travel. However, you may be able to claim local expenses directly related to the property inspection and a proportion of accommodation expenses.
Contact us for an initial discussion.
What are the secrets you need to know before you start investing?