Deductions on rental expenses
Question from Martin Jr updated on 21st September 2020:
We currently have a rental property but this property was initially bought as owner-occupied. Due to a change in personal circumstances, the occupier of the property moved back to our family home and we decided to rent out the property instead.
My first question is: Can the costs associated with buying the property and securing the mortgage for the property, such as solicitor fees and valuation fees, still be claimed as deductible expense against the rental income, even though we initially bought the property not for rental purposes?
My second question is: For the ongoing expenses of the rental property such as insurance, rates and mortgage interest, can we start claiming deductions for these at the time the property is available for rent - ie: when we first advertised it for rent? Or can we only claim these expenses against the rental income at the time the tenant moved into the property and started paying rent?
Thank you very much for your response.
Our expert Mark Withers responded:
1) No only expenses incurred that relate to the deriving of rent from the property will be deductible. These would become deductible only once the property has been made available for rental. There was no nexus with income related to the costs incurred at the point of acquisition.
2) The holding costs become deductible from the point where the property was available for rental. Note, any work on the property that was done pre tenant will not be deductible as this would be considered to relate to the domestic use.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.
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