Rental property income

When someone has a rental property and you are determining income the following expenses are considered allowable income and can be deducted from the rental income:

• interest payments on money borrowed for the purchase of the rental property, but not capital instalments for the reduction of mortgage
• rates
• house insurance
• agent fees and commission if a property manager or agent is used
• repairs and maintenance
• other fees - for example, bank administration fees for the mortgage, tenancy agreement costs, any valuation required for mortgage purposes, accounting fees, etc

When a client rents out part of their property, only expenses attributable to the rented portion of the home can be deducted. To determine the expenses for the portion of the home rented out, calculate the area of the rental portion as a percentage of the total home. The rental area is the area of the home that is used only by the tenant and does not include any common areas that are used by the client and tenant.

Depreciation is an on-paper deduction for wear and tear on a fixed asset. It is usually claimed as part of an income tax return at the end of a financial year. Depreciation cannot be deducted to assess the net weekly income from properties to be treated as personal income for Student Allowance purposes.

Please see below for more information about the costs that can be included for repairs and maintenance.

When making decisions about whether a cost can be included as a repair or maintenance allowable expense in a rental income assessment, you need to consider:

• were the repairs or maintenance essential in order to maintain the house and property to a habitable standard
• were the repairs and maintenance required to meet the client and/or their tenants current housing needs
• have the costs claimed been verified with receipts which, if necessary, are detailed enough to verify the work undertaken was essential or needed for maintenance

Expenses incurred in developing a rental property which may increase the value of the property, or enable a higher rent to be charged, are not an allowable expense. For example, additions to the property (including painting costs directly associated with the additions) would not be an allowable expense.

Repairs to existing essential services that may be considered allowable expenses include:

• water
• gas
• power
• sewerage services (including showers, toilets, sinks and the drains attached to them)

Other repairs can be considered if they are essential to:

• the structural stability of the house or property (repairs to buildings or sheds on the property that are not used for accommodation purposes are not to be considered)
• wiring and light fittings
• septic tanks (provided repairs have not been paid as a non-recoverable Special Needs Grant)
• any repairs required to meet building regulations

Repairs to any major appliance that helps maintain the house in a habitable state can be included, such as:

• gas or electric stove and
• hot water cylinder

The cost of repairs or replacement of household contents is not considered an allowable expense, for example:

• microwaves
• furnishings
• fridges and
• washing machines

Note if the washing machine or fridge is included in the tenancy agreement, then repairs or replacement may be included.

Repairs that are allowable expenses can only be included in the rental income assessment if the bills are incurred while the Student Allowance is being received.

Maintenance expenses that may be considered an allowable expense include any reasonable maintenance carried out on the house or grounds, which is necessary to prevent damage or substantial deterioration to the house.

This may include but is not limited to:

• clearing chimneys
• replacing broken windows
• removing trees (when necessary)
• painting (internal and external) if required

Painting expenses can be considered an allowable expense only if the costs are incurred while receiving a Student Allowance.

Maintenance costs do not include such things as:

• mowing the lawns
• work carried out for cosmetic purposes