Travel expenses for investment properties (and CGT)

 

An article in the latest The Taxpayer1 magazine discussed the relatively recent change to the rules regarding the ability of investment property owners to claim travel expenses related to their residential rental holdings.

These claims are no longer allowed (see here for some ATO information). But the wording of the ATO guidance, which was also used in the above article, prompted a query from a Tax & Super Australia (TSA) member regarding two other aspects related to the deductibility or otherwise of such travel.

As the ATO puts it: “Travel expenses relating to inspecting, maintaining, or collecting rent for a residential rental property cannot be claimed as deductions by investors”.

This left open the possibility that incurred travel expenses related to other aspects of owning a residential rental property — that is, NOT inspecting, maintaining, or collecting rent — could leave the deductibility door ajar.

The member query had two parts. First of all, they noted for example that an investment property owner may need to buy, and deliver, replacement assets for use in the property, and such actions would generate travel expenses. And secondly, would these costs be eligible to reduce the cost base for an eventual CGT calculation.

Turning to TSA’s in-house tax technical team for clarity, Senior Tax Specialist Michael McCarthy found that this scenario had already been covered by the legislation. ITAA97 section 26-31(1) states: “You cannot deduct under this act a loss or outgoing you incur, insofar as it is related to travel, if:

  1. it is incurred in gaining or producing your assessable income from the use of residential premises as residential accommodation; and
  2. it is not necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.”

In other words, the rule change is not limited to “inspecting, maintaining” and so on, but encompasses all aspects of gaining assessable income. So, the first part of the member’s question is answered.

To clarify the CGT aspect of his query, we need to scroll down the act a little, to s 110-38(4A), which also references the above section. This states: “Expenditure does not form part of any element of the cost base to the extent that section 26-31 prevents it being deducted.”

So, second element of the question settled.

Finally, another of TSA’s tax technical team, Mirela Vlascici, found a reference to the same matter on the ATO’s Community page (so these questions may be more widely asked than we thought). An operative for the Community forum mentioned that taxpayers may want to consider hiring somebody to do such inspecting, maintaining, collecting rent and other tasks, as this expense will still be claimable.

This could form part of your suggestions to relevant clients with the same concerns.

 

 

1 Tax & Super Australia members receive this magazine as a member benefit. The Taxpayer online is generally available to members from the beginning of each month, and the print version is mailed one week to 10 days later.

Travel expenses for investment properties and CGT Travel expenses for investment properties and CGT Travel expenses for investment properties and CGT Travel expenses for investment properties and CGT Travel expenses for investment properties and CGT Travel expenses for investment properties and CGT