Rental Property: How Part-Year Rentals Affect Tax Claims
24 November 2017

Rental Property: How Part-Year Rentals Affect Tax Claims

Your tax rental income statement records every dollar you receive, but it doesn’t reflect how many dollars you actually take home. If you own a rental property, you will have had to settle a lot of bills in order to receive those dollar bills you have listed as income – without doing so, you would have received a lot less. But what happens if you only rent out your house for part of the year? Baxton Property Management in Hobart looks at the tax implications.

Stating your entire income and then claiming the costs of earning it, changes your gross income to a nett income, giving a far more valid picture of what money actually reached you, not just your bank account. It is from this final clean figure that the tax authorities slice their share of the pie in the form of taxes. However, the final figure changes, because the claimable expenses do, if your rental property does not operate all year through.

The rules of the tax game

While it is sometimes hard to believe it, the tax authorities are trying to play fair – they only want their share of the rental money you have actually pocketed. But they want you to play fair, too, by claiming deductions only on expenses directly related to earning it. So expenses that you incurred for personal use of the house don’t cut it as far they are concerned. Every homeowner has expenses running their properties and they can’t claim them against tax.

The taxman also accepts that there are good years and bad years for rental property owners, when they simply don’t have many tenants. Yet the owners go on having expenses involved in trying to attract those elusive tenants, so some expenses involved are still claimable even when your rental income is low.

For rental property owners, the overall principle is that you can only claim expenses with regard to costs while your property was actually rented out, or while real intention was being shown to make an income out of the property, which is when, as tax authorities term it, it was genuinely “available to rent”.

When you won’t be able to claim any expenses

If the revenue office has cause to believe the property was not truly “available to rent”, it will not sanction expenses claims. The following couples would get their expenses claims rejected immediately.

  • Sam and Jane made it way too difficult for tenants to rent their property. They asked for references even for short term tenants, and barred children and pets. And they also demanded final approval, despite advertising their premises through an agent. To top it all, not one prospective tenant earned that approval.
  • In Steven and Sally’s case, they advertised their “rental” through an agent, but restricted it to being only available outside school holidays, when there was no demand for renting a property in a remote location with difficult access. They also had no tenants during that year.

When you will apportion expenses

 If either of these couples had indeed managed to land a tenant, even for a short period, they would fall into the category of those rental property owners who have to apportion expenses according to how much of the year the premises were rented out, or were honestly available for rent.

Joining them are owners who openly rent out their houses for a short period of the year, using it themselves the rest of the year, and those who do the opposite, using it themselves for a short holiday, and making it available for rent the rest of the year. Any expenses that come up while you, your family or friends are enjoying the property privately, can’t be claimed. So these taxpayers will also have to do apportionment claims.

Apportionment means that those costs directly tied to your rental income can only be claimed in proportion to how much of the year tenants helped you generate it. If tenants rented your property for 35 weeks of the year, the expenses would be multiplied by 35/52 to determine the claimable share of the year’s expenses.

Some exceptions to the rule

Exceptions are those expenses brought about during the course of the rental process. These include estate agents’ commission, advertising for tenants, phone calls to fix damage tenants caused, and the cost of removing any rubbish they left behind.

Baxton Property Management in Hobart has seen it all when it comes to rental property operations. After all, it has managed $1billion worth of properties for owners over the years. Baxton views it as their mission to make relevant available on tax and other property and rental issues to their clients, and to the tenants who occupy their rental properties.



#1 – Australia’s Property Management Specialists

We hope you enjoyed this article

The information contained in this article is based on the authors opinion only and is of a general nature which is not indicative of future results or events and does not consider your personal situation or particular needs. Professional advice should always be sought relevant to your circumstances.

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  • Gary Willson

    Selecting the right and experienced property consultants at Invest Property Solutions will help property investors not only in seeing the ROI but also finding the right investment property.