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Disallow the deduction of travel expenses

Denial of travel deductions for residential rental property

From 1 July 2017, travel expenses relating to inspecting, maintaining, or collecting rent for a residential rental property cannot be claimed as deductions by investors. The changes are now law. The travel expenditure is also not recognised in the cost base of the property for CGT purposes.

Denial of travel deductions

Where the provisions apply, any travel expenditure incurred by the taxpayer in relation to the property will no longer be deductible. The amendments apply to expenditure incurred on or after 1 July 2017.

It is intended that the term ‘travel’ takes its ordinary meaning. It includes motor vehicle expenses, taxis, airfares, and any meals and accommodation costs associated with the travel.

The types of travel that the amendments are designed to catch include costs incurred when the property was first acquired or when the property is in the process of being sold, costs incurred in visiting or inspecting the property or visiting the property manager, and costs incurred in collecting rents. It covers all costs, from flying to the Gold Coast to inspect your rental apartment, to driving to the next suburb to mow the lawns at a house you rent out. Travel expenses incurred on residential premises that are being used both as residential accommodation and for another income producing purpose (for example, you lease a shop and the residential premises upstairs above the shop), the travel costs can be apportioned on a reasonable basis.

Consequential amendments also ensure travel expenses that are made non-deductible through these amendments cannot be deducted as blackhole expenditure under section 40-880 ITAA 1997.

Denial of cost base adjustments

To ensure there is no indirect tax benefit from these amendments for affected taxpayers, the CGT provisions are also being amended. Under this consequential amendment, travel expenses that have been made non-deductible under these amendments will also be excluded from the cost base of the rental property for CGT purposes.

You can continue to deduct travel expenditure if:

  • the losses or outgoings are necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income; or
  • you are an excluded class of entity.
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