Travel costs associated with inspecting residential rental properties are no longer deductible for individual investors under current ATO guidelines. This change came into effect on 1 July 2017 as part of measures to prevent exploitation of travel deductions. However, there are nuances and exceptions to consider, particularly around commercial properties, joint ownership, and different ownership structures.
Under the ATO's current position, individual investors cannot claim travel expenses for inspecting, maintaining, or collecting rent for residential properties. This rule is part of broader reforms introduced to curb misuse of tax deductions. It's crucial to note that this applies specifically to residential properties, and different rules may apply if the property is commercial or owned through a different structure, such as a company or trust.
A common misconception among investors is that any travel related to their rental property is deductible. However, since the legislative changes, claiming these costs could result in penalties. It's important to understand that the ATO scrutinizes such claims closely, and non-compliance can lead to audits and fines.
To see how this plays out, consider the example of a Melbourne-based investor who owns a residential apartment in Sydney. Prior to the 2017 changes, they could claim travel costs for inspections and maintenance visits. Now, these expenses are non-deductible. If they spent $800 on flights and accommodation for a yearly inspection, this is no longer claimable, potentially increasing their taxable income and subsequent tax bill.
In our experience reviewing thousands of properties across Australia, we find that many investors still attempt to claim these costs out of habit or misinformation. Another frequent oversight is not distinguishing between residential and commercial properties, where the latter may still allow for travel deductions. Additionally, investors often overlook the potential for other deductible expenses that may offset the loss of travel deductions, such as depreciation on plant and equipment.
The answer can differ depending on your situation. For example, if the property is owned by a company or trust, travel expenses might still be deductible. Similarly, if the property is commercial, travel deductions could apply. These scenarios highlight the importance of understanding the specific rules applicable to your situation, as incorrect claims can lead to penalties.
Given the complexity and potential financial implications, consulting with a Chartered Quantity Surveyor and a tax accountant is highly advisable. They can provide tailored advice based on your unique circumstances, ensuring compliance with current regulations and maximising your tax position.
To navigate these changes effectively, consider the following steps: