Travel deductions for rental properties removed
After 1 July 2017, the deductions for travel to residential rental property will be disallowed. In particular, the travel cost of attending inspections, maintain the property or collecting rent will be excluded.
It is important to note here that the expenses will relate to travel only. A landlord can still claim a deduction for repairs undertaken to their residential rental property.
What we don’t know
How does this integrity measure apply to individuals who are “do-it-yourself” property managers? Often times, a DIY investor will need to make running repairs to their property over the ownership period to maintain the value of the rental property. Will travel expenses include the cost of hiring other motor vehicles such as trucks and utilities, and their associated travel?
What we do know
If the landlord engages a contractor or third party to undertake this work, the full amount (including travel disbursements) would be a tax deduction.
A landlord drives across town to collect a cash payment for rent on a rental property home. The tenant continues to pay cash on a private rental agreement that has been in place for many years.
From 1 July 2017, what we do know is that the cost of driving out to collect the cash rental payment is not deductible. However, what is not known is exactly when the rent is “collected”. If the tenant has paid the rent in cash, is the rent “collected” when the landlord has the cash in their hand? Based on other parts of the tax law regarding receipt it would appear this is the case.
What we don’t know is whether “collection of rent” in terms of travel expenses relates to the transport of cash to be banked? What happens if the landlord engages a third party to collect the rent on their behalf? It is unclear how specific the denial of deduction will be, however we will know more when the legislation is introduced into parliament.
On the surface, it would appear that this is not the policy intention to deny minimal deductions to rental property owners for incidental travel. To engage a professional contractor to hammer, a few nails in a falling fence appears to be an excessive deduction as opposed to driving down the street.
There is no indication on whether the residential property travel will extend to common areas in a building. For example, the travel of a DIY investor completing some gardening on common property in front of their block of flats.
The policy intent appears to be to deny deductions for airfares and hotels for attending an inspection with the real estate agent, where the landlord would have to produce a diary as substantiation of their trip.
However, it must be said that no further comment has been made on this since the Budget announcement. We will produce more detailed content around this legislative change when the explanatory memorandum is introduced by the government.