Unlet Property Rental Tax Issues

Holiday Rental Owners: Beware This Unlet Property Tax Trap

Do you own a rental property that stands vacant for any period of time? Or does your investment property double as a personal holiday home?

Yes? Then this article is for you.

The ATO has warned that claims for deductions relating to rental properties for the Y.E. 2017 will be subject to close scrutiny.Read more


If you link Bank A savings account to Bank A investment loan account as an offset account, does the deposit and withdrawal activity in the offset account impact deductibility of interest charged to the investment loan account?

No it doesn't affect the interest deductibility.

This remains the case where you have a savings account linked to your loan account as an offset account.

The savings account and loan account, while linked, are separate accounts.

While deposits and withdrawals in the offset account will increase or decrease the amount of interest charged to the investment loan account, the deposits are not repayments of the loan and the withdrawals are not new borrowings.

The use of the borrowed funds is not affected by the deposit and withdrawal activity in the offset account.


You can claim borrowing expenses greater than $100 over a five year period or over the life of the loan whichever is the least. You can claim all of the following borrowing costs

• stamp duty charged on mortgage (note this is not the stamp duty on purchase of the property)
• loan establishment fees
• title search fees charged by the lender
• costs for preparing and filing the mortgage documents
• mortgage broker fees
• valuation fees for loan approval
• lender’s mortgage insurance

It is important in the first year that you don’t claim the full amount amortised over the five year period but you will need to apportion the first years borrowing costs over the number of days between the date you took out the loan and the end of that particular financial year. Another common mistake is either not claiming the borrowing costs at all or claiming them all in the first year the loan is taken out.

If a loan has been taken out and has a mix of private and investment/business components (something we recommend you really try to avoid and work together with your accountant and mortgage broker to prevent getting into this sticky situation) then the borrowing expenses also need apportioned.

Can you claim a deduction for 100% of interest incurred on an investment loan held in joint names where the title of the investment property is in your name only?

Yes you can.

Taxation Ruling TR 93/32 considers the division of net income or loss between co-owners of a rental property. TR 93/32 states that net income or loss from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. Legal interest is determined by the legal title to a property.

TR 93/32 states that where the title deed of a rental property indicates sole ownership of the property, and the mortgage is held in joint names, the legal owner can claim the full amount of the interest paid.

In example 5 of the ruling it states:

The fact that Mr Z has paid all the expenses on the property is of no consequence for income tax purposes. We would simply treat the payment of Mrs Z's share of the expenses by Mr Z as no more than a loan by Mr Z to Mrs Z.


2013 Tax Variations Now Available

The tax office has released the 2013FY Tax Variation forms and has now started processing those requests. Each variation only last until the end of each financial year, so if you've lodged one in the past then you may want to consider requesting another one for the new year - which is only six weeks away now!   Read more


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