Deductibility of Rental Property Advertising Expenses

Is a deduction available under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for advertising expenses related to the sale by auction of a rental property?

No. Advertising expenses related to the sale by auction of a rental property are not an allowable deduction under section 8-1 of the ITAA 1997 as the expense is of a capital nature.

The taxpayer owned a rental property. The rental property was vacant for a significant period of time with little prospect of finding a tenant. During the period that the rental property was vacant, the taxpayer engaged the services of a selling agent for the express purpose of selling the property by auction. The taxpayer incurred expenses related to engaging the services of the selling agent.

The property failed to sell at the auction. However, in response to advertisements placed by the selling agent, a prospective tenant later came forward and subsequently took out a lease over the rental property.

The taxpayer wants to claim a deduction for expenses related to engaging the services of the selling agent.

At the time that the taxpayer engaged the services of the selling agent, the taxpayer's intention was to sell the rental property. The fact that the advertisements placed by the selling agent enabled the taxpayer to find a tenant for the property is merely coincidental. It was not the intended purpose of engaging the selling agent.

Any profit arising from the disposal of a rental property is a capital gain and any expenses related to that disposal are of a capital nature. Paragraph 8-1(2)(a) of the ITAA 1997 provides that you cannot deduct from your assessable income any expense that is of a capital nature. As the cost of engaging the selling agent was of a capital nature, a deduction for that expense is not available under section 8-1 of the ITAA 1997.