Is your investment property genuinely available for rent?

As seen in Woopi News September 2024

This question is more commonly asked about holiday rentals or other short-term accommodation but can apply in other circumstances as well.

So why is this question important? It has to do with the deductibility of expenses associated with an investment property, particularly costs that are incurred regardless the amount of rental income received, like loan interest, land rates, insurances and strata levies.

The ATO seems particularly interested in properties with low rental income and or high deductions that trigger a rental loss, where the property has been said to be ‘available for rent’ all year but isn’t genuinely available.

A landlord can only deduct costs associated with their investment property when its genuinely available for rent. Merely advertising the property for rent either through an agent or online platform isn’t enough. Factors that indicate a property is not genuinely available include:

• the location, accessibility, or condition of the property, mean that it’s unlikely that tenants will apply to rent it.
• the landlord has placed unreasonable conditions on renting the property such as above market rent in comparison to other properties in the area, requiring tenants to have references for short term stays or having conditions like ‘no children’ or ‘no pets’.
• refusing to rent out the property to a potential tenant without an adequate reason or reserving the property for private use or family and friends to stay free, or at discounted rates, is also an issue.

Where a property isn’t genuinely available for rent it’s important to apportion the expenses and only claim for the periods the property was available. If the rental schedule were to be reviewed and the ATO found it wasn’t genuinely available, a possible outcome is that they remove the rental loss so that the property breaks even. If the property is positively geared the outcome may be to reduce the expenses or increase the rent to reflect market value.

More information is available on the ATO website or perhaps discuss this matter with your accountant if you have any concerns.