The portfolio basis can be used when you have one or more residential properties in an income year. This is the default basis.
When you work out your deductions on a portfolio basis:
- the allowable deductions for all properties in the portfolio are used against all the income from them
- you work out your excess deductions across the whole portfolio
- you cannot use excess deductions against your other income. For example your salary and wages.
- you must carry excess deductions forward and use them against future portfolio income (unless you sell all the portfolio properties and all the sales were taxable).
Changing the residential rental deduction basis
Once you've used the portfolio basis for a property, you cannot change to the individual property basis for that property.
Using the portfolio and individual property basis together
You do not have to choose one basis if you have two or more properties. You can use both. One or more properties could be in the portfolio. You then use the individual property basis for any others.
Talk to your tax advisor to see what is best for you.
Minerva owns two residential properties.
Minerva chooses to apply the residential deduction rules on a portfolio basis. This is the default basis.
In the 2019-20 income year, one of Minerva's properties returned gross rental income of $20,000 and the deductions for it were $12,000. Her second property returned $25,000 gross rental income and deductions for it were $30,000.
In her tax return for the year, Minerva will include $45,000 gross rental income and $42,000 of deductions for her portfolio. She takes the deductions from her gross rental income. Minerva has net rental income of $3,000 from the portfolio. She'll pay tax on this $3,000 of rental income.
Minerva has no excess deductions to carry forward into the next tax year.
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