Travel Deductions For Residential Rental Property

Q&A Tax

Question :

Mr. A is the trustee of a family trust with two residential properties in the trust. He manages the
family trust by renting out these two properties and distributing the rental income to the family
beneficiaries.

When he is doing the Trust Return for FY2019, he noticed the changes to travel deductions for
residential properties. He concludes that the family trust is not an excluded entity. Meaning that travel
deductions can no longer be claimed for managing the family trust.

Is Mr. A’s conclusion correct or not? What does the new rule say? What kind of entity is excluded from
the new rule?

 

Answer :

Mr. A’s conclusion is correct. The rules in this area are contained in section 26-31 ITAA 1997. They
basically ensure that travel expenses cannot be deducted if the travel relates to a residential rental property unless a rental business is being carried on.

Generally, owning one or several rental properties will not be considered being in the business of letting
rental properties. To determine whether there is a business has been carried, a list of factors will be
considered such as the number of rental properties, whether the activity is planned, organized and
carried out in a businesslike manner, registration of ABN and business name, etc.

While there are some limited exceptions to the new rules for certain types of entities, they would not
apply to a normal family / discretionary trust.

The exception to the rules only applies if the entity is one of the following:
• corporate tax entity
• superannuation plan that is not a self-managed superannuation fund
• public unit trust
• managed investment trust
• unit trust or a partnership, all of the members of which are entities of a type listed above.

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