Tax Tip 106: Deductibility of Expenses – General Concepts

Deductibility of Expenses – General Concepts


Expenses such as interest, and other costs, can be deductible because of section 8-1 of the Income Tax Assessment Act 1997. Check it out here

INCOME TAX ASSESSMENT ACT 1997 - SECT 8.1 General deductions


This section allows costs “incurred in gaining or producing your assessable income” to be deducted from your assessable income.

However subsection 2 of 8-1 restricts this ability to deduct expenses saying that a loss or outgoing cannot be deductible to the extent that

So where an expense is capital it cannot be claimed. Capital items would include the costs of purchase price of the property, conveyancing, stamp duty etc.

Where an expense is private or domestic it cannot be claimed. The wording of subsection (2) says “to the extent that”. This means that where an expense relates partially to investment and partially private then the investment portion could be deducted. – this would include interest on a loan on a property that you were living in but also renting rooms for example.

If an expense is incurred in gaining or producing exempt income then it cannot be deducted. Exempt income may include certain NRAS payments. This is why the full interest on loans used to purchase NRAS properties cannot be claimed.

If there is some other section preventing a claim then you cannot claim it. An example of this is the section 25-25 which relates to borrowing costs. Borrowing costs incurred in producing assessable income must be apportioned over 60 months because of this section.

 

The ATO website gives a good rundown of rental deduction. I usually go through it while in the loo.

Rental property expenses | Australian Taxation Office