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Paying tax on your rental income
Generally, any income that you receive from renting out property will be liable for income tax, so you must include it in your tax return. This income could be from renting out land or buildings, or it could be income you earn by having private boarders or flatmates living with you.
Rent in advance
If you receive rent in advance, it is taxable in the year in which you receive it. For example, if your tenant paid rent on 30 March 2006 which covers the following two weeks, you must still return this income in the income year 1 April 2005 to 31 March 2006 (if you have a standard 31 March balance date).
Amounts received for tenancy bond and passed on to the Tenancy Bond Centre are not income. Amounts received from the Tenancy Bond Centre for payment of damages, rent arrears etc, should be included as income.
The following expenses can be deducted from your rental income:
- rates and insurance
- interest paid on money borrowed to finance your property
- agents fees and commission
- repairs and maintenance (except if they substantially improve the property)
- motor vehicle and travel expenses
- legal fees for arranging the mortgage or finance to buy the property
- from the 2010 income year and beyond, legal fees for buying and selling a property can be deducted provided your total legal expenses for the income year, including the fees associated with buying and selling a property, are equal to or less than $10,000. Before the 2010 income year, legal fees for buying and selling a property are not deductible.
- mortgage repayment insurance
- accounting fees for the preparation of accounts
- depreciation (but not building depreciation).
- From the 2011-12 income year, the rate of depreciation on buildings has reduced to 0% if buildings have an estimated useful life of more than 50 years.
- From the 2013-14 income year new mixed-use asset rules apply to holiday homes to determine the expenses allowed for income tax purposes.
For more information on expenses you can claim and expenses you can't claim, read our Rental income (IR264) booklet.