From the 2018 financial year onwards, travel expenses related to inspecting, maintaining or collecting rents for a residential property can no longer be claimed as a tax deduction by investors. The restriction applies to all transport costs (regardless of the mode of transport used), meals, and accommodation expenses incurred in relation to residential rental properties.
There are however some exceptions to these changes as follows:
Firstly, the rules will not prevent a deduction from being claimed if the expense is necessarily incurred in carrying on a business. This means that you can continue claiming travel deductions if you carry on a business of property investing, or a business of providing retirement living, aged care, student accommodation or property management services.
The distinction between someone merely investing in passive property investments and someone carrying on a business of property investing is a matter of fact. The ATO will look at the characteristics of the business including:
- the total number of residential properties that are rented out
- the average number of hours per week you spend actively engaged in managing the rental properties
- the skill and expertise exercised in undertaking these activities, and
- whether professional records are kept and maintained in a business-like manner.
The fact that a taxpayer has multiple properties does not necessarily mean that they are in business. It will really depend on whether you can prove that you actively manage the properties like a business. In a recent case, the Administrative Appeals Tribunal found that a taxpayer with 9 rental properties was considered to be carrying on a business of property rental largely because the taxpayer actively supervised the real estate agent employed and managed issues associated with the properties (thus having a discernible pattern of trading to their activities), the capital employed was significant and they had conducted property rental activities for a number of years.
Also, the rules do not apply to certain entities including:
- Superannuation funds that are not an SMSF;
- Managed Investment Trusts;
- Unit trusts or partnerships (but only if all unit holders or partners fall within one of the categories above).
In addition to the rules that prevent a deduction from being claimed, the changes also ensure that travel expenses cannot be included in the cost base or reduced cost base of a property. This means that they cannot be used to reduce a capital gain or increase a capital loss made on sale of the property.
For all taxpayers with investment properties the message is now very clear – unless you are in the business of property investing – No More Travel Deductions are allowed!!
If you're unsure whether you can legitimately claim travel expenses related to your residential investment property, please give either of our offices a call on Sunshine Coast 07 54754300 or Brisbane 07 38423128 or email us with your queries to firstname.lastname@example.org
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