The Federal Government’s annual budget released on 9 May 2017 introduced a significant change that will impact investment property owners from 1 July 2017 onwards. Owners of residential investment properties will no longer be able to claim a tax deduction for travel costs related to inspecting, maintaining or collecting rent for a residential rental property.
The Federal Government’s rational behind the change is that it was an integrity measure to stop the abuse carried out by some property investors that were claiming a tax deduction for private travel incurred for their annual holiday at a location which was at the same as the location of their rental property or incorrectly apportioned their costs between private and rental property travel.
What can you do? We have three ideas…
- The measure will not prevent investors from engaging third parties to undertake activities on your behalf. For example, your real estate can carry out inspections, organise repairs and collect the rent. In these circumstances, the expenses will remain deductible.
- If you are looking to purchase a residential rental property, consider a property acquisition close by your home. That way, if you did need to travel to the property, the expense foregone will be minimal compared to the non-deductible travel costs if you needed to travel interstate to attend to a property matter.
- Consider adding a commercial property to your portfolio. Expenses for travel to a commercial property are still deductible where the travel is to inspect, maintain or collect rent.
- If your portfolio of residential properties is substantial, and all the management activities are handled by the owner (instead of a real estate agent), you may be considered to be carrying out a rental property business. This is distinguished from simply receiving rent from your passive involvement with your rental properties that are managed by a real estate agent. Claiming a tax deduction for travel will still permitted where it relates to carrying on a rental property business.
The tax rules relating to rental properties can be complex and we recommend you obtain get professional tax assistance before committing to any property investment.