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Is a taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for body corporate fees, payable in relation to day to day administration and maintenance, [F1] incurred with regard to a rental property?

Yes. A taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for body corporate fees, payable in relation to day to day administration and maintenance, [F1] incurred with regard to a rental property.

The taxpayer is purchasing a strata titled rental property from which they will earn assessable rental income.

The rental property will be managed by a body corporate.

A company administers the body corporate and will charge a body corporate fee. The body corporate fee will cover day to day [F2] administration expenses and property maintenance costs. The fee does not include any component to be applied to a special purpose sinking fund. [F3]

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, or relate to the earning of exempt income.

A number of significant court decisions have established that, for an expense to satisfy the requirements of section 8-1 of the ITAA 1997: • it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166) • there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income ( Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236); and • it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces their assessable income ( Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557).

The taxpayer will incur body corporate fees in relation to their rental property. There is a sufficient connection between the fees payable with regard to day to day administration and maintenance [F4] and the earning of assessable income from that property. Accordingly, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for body corporate fees incurred with regard to their rental property.