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Is the taxpayer, a landlord, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the costs incurred to reimburse tenants as a result of them having to move into short-term accommodation?

Yes. The taxpayer, a landlord, is entitled to a deduction under section 8-1 of the ITAA 1997 for the costs incurred to reimburse tenants as a result of them having to move into short-term accommodation.

The taxpayer owns an investment property.

During the income year, various repairs were completed in relation to the investment property which resulted in the property becoming unfit to occupy.

As a result the tenants, who have a current lease over the premises, had to move out of the property and take temporary accommodation at a hotel.

The taxpayer reimbursed the tenant's temporary accommodation costs.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.

Expenses that are 'incidental and relevant' to the taxpayer's income earning activities are considered to be sufficiently connected with the derivation of assessable income and therefore will be an allowable deduction under section 8-1 of the ITAA 1997 (Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15; (1949) 4 AITR 236; (1949) 8 ATD 431).

Therefore, providing that the expense can be objectively viewed as a necessary or natural consequence of the taxpayer's income earning activities, the expense will be 'incidental and relevant' to the income earning activities of the taxpayer.

A landlord is expected to provide premises which are fit for occupation. The taxpayer failed to provide such premises for a temporary period following the completion of the faulty repairs. In recognising their failure to provide suitable premises, the taxpayer reimbursed the tenants for the cost of their short-term accommodation.

In these circumstances the taxpayers expenditure can be viewed as a natural consequence of the taxpayer's income earning activities as a landlord and therefore 'incidental and relevant' to the derivation of rental income.

Accordingly, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for the costs incurred to reimburse their tenant's short term accommodation costs.

Date of amendment Part Comment 6 June 2014 Reason for Decision Updated case references Case References Updated case references

Date of amendment | Part | Comment

6 June 2014 | Reason for Decision | Updated case references

Case References | Updated case references