It should come as no surprise that rental related travel expenses are tax deductible. Most of you will already realise that the costs associated with any one trip, need to be apportioned between rental related and private purposes. However its worth knowing how the deductibility of such a trip would be calculated, and how you can maximise your deductions.
This really is an example of a tax deduction which you need to think about before your trip. If you wait until it is time to lodge your income tax return, and then ask your accountant about it, you will almost certainly miss out on at least a portion of the possible deductions available. Why you ask? Not surprisingly, these deductions undergo a considerable amount of scrutiny from the ATO. Without the proper documentation, few accountants are willing to run the risk of including a deduction which the tax office may consider excessive, and will likely claim 10% of the flights, to try and keep both their client, and the tax office, happy.
Probably the most widely accepted method by which to calculate such a deduction, is to first calculate the following costs:
- Flights
- Accommodation
- Meals
Then to determine the appropriate deductible portion, first work out how many days you actually did something rental related and divide that by the number of days you were actually at your destination (so do not include days on which you travelled to your destination).
If you have a property manager, it really is difficult to claim more than a few days. For example, you might have a meeting with your property manager on one day, and then inspect the property on the following day (which obviously needs to be organised in advance). In such a case it would be wise to get some form of documentation, the easiest would be to print out emails from your property manager confirming the dates, or a copy of the inspection report (make sure the property manager records the fact that you were present).
If however you manage the property yourself, then chances are that on such a trip you will end up doing some form of maintenance. Receipts for tools or materials, photos, diary evidence, conduct an official inspection and produce a report, get the tenant to sign something saying you were there performing maintenance. Anything. Obviously if you have some form of written evidence, for every day that you were at your destination, you will be able to claim a far greater portion of the flights, accommodation, and meal costs associated with the trip.
It is important to point out, that you simply can not claim the cost of researching prospective investment properties as a tax deduction against your existing rentals. That means you can not claim any portion of your trip costs on the premise that you were “conducting research”.