Rental expenses deductibility

Our Experts Answer:

The old saying, "give a man a fish you feed him for a day, teach him to fish, you feed him for a lifetime" springs to mind. So rather than give you a list of deductibles let me share the principal of deductibility. The general permission of deductibility is what is referred to as the nexus test - ie: can a link be demonstrated between the cost and the income earned. If the cost is necessarily incurred to earn the rental income the first hurdle is jumped.

The second hurdle is known as the capital limitation. So if the expenditure is capital in nature, ie an improvement to the property, it will not be deductible. If the item of capital expenditure is not building though the capital expenditure may be depreciable. Loose chattel items within a rental property tend to be depreciable items. So with respect to your specific queries, yes, the valuation to enable the finance to be gained is deductible as without it no rent could be earned and with respect to legal fees, these typically are deductible when the quantum is less than $10000.