Residential rental property
Last modified: 03 Aug 2020
Residential rental property
Due to COVID-19, some new circumstances affect tax outcomes for residential rental properties, these include:
- When tenants can’t pay
- Deductible loan interest
- Back-paid rent or insurance for lost income
- Instant asset write-off does not apply
- Short-term rental properties
If COVID-19 has affected your tenants’ income, this may affect the income you receive from your residential rental property.
You can still claim deductions in your tax return if your tenants can’t pay their rent under the lease agreement because their income has been affected by COVID-19 and:
- you received less rental income as a result
- you continue to incur normal expenses on the property.
You can also claim deductions if you reduced your tenants’ rent to allow them to stay in the property due to COVID-19 for commercial, arm’s-length reasons.
Interest is deductible on your loan:
- if it continues to accumulate because it is an expense you have incurred
- even if the bank defers the repayments.
If you receive a back payment of rent or an insurance payment for lost rental income, you should declare this as assessable income in the tax year in which you received it.
Instant asset write-off does not apply
If you’re a property investor, you cannot access the instant asset write-off deduction for the property.
Due to COVID-19, you may have experienced reduced demand for your short-term rental accommodation, including cancellation of existing bookings. This may affect the income you receive from your short-term rental property. However, you may still be able to claim deductions.
If your ability to rent your property has been affected and nothing else changes, you can continue to deduct expenses, based on how you used the property in the equivalent period in earlier years.
You can only claim a deduction for the portion of expenses that relate to income-producing use. If you use your short-term rental property for some private use, you can’t claim deductions for this period.
Whether you can continue to claim a deduction for expenses in the same proportion during the COVID-19 period depends on:
- how the property was used before COVID-19, and
- how you planned to use the property during the COVID-19 period.
This means that if during the period your property is affected by COVID-19, you use the property differently, the proportion of the expenses you can claim as a deduction may reduce. For example:
- increased private use of the property by you, your family or friends
- a decision to permanently stop renting out your property when COVID-19 restrictions end.
Example: Holiday home used privately during COVID-19
Jim uses his holiday home privately for himself and his family to isolate during COVID-19. He can’t claim deductions for the property for this period. Jim’s private usage of the property will increase and reduce the deductions he can claim.
End of example
Temporarily stopping or reducing paid advertising
To claim deductions for periods when your property is vacant you must show that your property is available for rent.
This factor alone will not determine the allowable proportion of your deductions. If you made a reasonable commercial decision to temporarily stop or reduce advertising for your property during a COVID-19 lockdown, you may still be able to claim deductions for this period. You will need to consider:
- the likelihood of renting a property in that locality during the lockdown
- how the property had been used before the lockdown
- how you plan to use the property during the lockdown