Tax time focuses on rental property income and deductions

Income and tax deductions from rental properties is one of four key areas the Australian Taxation Office (ATO) is focusing on this tax period. This is an area that is easy to get wrong and requires extra care when hosting. The ATO random survey program found that nine out of ten tax returns reporting rental income and deductions contained at least one error, even though most of these landlords were assisted by a registered tax agent.

The ATO therefore urges rental property owners to ensure they review their records carefully before reporting income or claiming deductions this tax period, and to registered tax agents to ask their clients a few additional questions.

Assistant Commissioner Tim Loh explained, “Registered tax agents can only work with the information they collect from their clients, and we know that some clients won’t know everything they need to tell their agent. We don’t expect agents to be Sherlock Holmes, but we do expect them to ask the right questions to ensure their client’s return is correct.

Mr Loh said rental property owners are urged to make sure they know what income they need to report and what can be claimed as a deduction.

“We are concerned about errors, and in particular the omission of income or the deliberate over-claiming of rental property deductions this year.”

“Getting it right the first time will ensure you get the tax refund you’re owed and keep us from knocking on your front door on the track.”

Include all rental income

The ATO receives rental income data from a variety of sources, including sharing economy platforms, rental surety authorities, property management software providers, and state and territory tax and land authorities.

“The amount of data we access increases every year, making it easier and faster for us to spot rental income you’ve billed your tenants but haven’t reported,” Loh said.

When preparing tax returns, ensure that all rental income is included, such as short-term rental arrangements, rental of part of a home, and other rental-related income such as insurance payments and rental deposits withheld.

“Income and deductions must be in accordance with a rental property owner’s interest, which must generally reflect legal documents.”

Control your expenses

Not all expenses are the same, some can be claimed immediately, such as rental management fees, municipal rates, repairs, loan interest and insurance premiums. Other expenses such as borrowing expenses and capital works must be claimed over a number of years. Capital work can include replacing a roof or renovating a new kitchen. Depreciation of assets such as a new dishwasher or oven costing over $300 is also claimed over their effective life.

Refinancing or refinancing a rental property loan for private expenses such as a vacation or a new car, means that the amount of interest relating to the loan for private expenses cannot be claimed as a deduction.

If income from rental property at a vacation resort is received, it must be included in tax returns.

“You can claim expenses for the property as long as they are incurred for the purpose of producing rental income, not when your family and friends have stayed at the property for a mini getaway at a companion rate, you use it yourself, say at Christmas, or you have stopped renting the property,” Mr Loh said.

“Other circumstances where deductions cannot be claimed include claiming your property is available to rent when it really is not, for example you are advertising significantly above a reasonable market rate compared to similar properties or you impose unreasonable restrictions on potential tenants.”

“Our 2022 Tax Timing Investor Toolkit also contains a number of fact sheets for homeowners, including top 10 tips to help homeowners avoid common tax mistakes. These tips will help you avoid common mistakes and save you time and money.

Sell ​​a rental property

When selling a rental property, capital gains tax (CGT) must be taken into account and any capital gains or losses must be declared.

When calculating a capital gain or loss, it is important to correctly calculate the cost base. The cost base generally corresponds to the cost of the good at the time of its purchase and all the costs associated with its acquisition or sale. These may include stamp duties, legal fees, appraisals and real estate selling fees. Any capital works claimed as deductions may also need to be subtracted from the base price.

“If you sold a rental property that was once your home, you may be eligible to partially claim the principal residence exemption. You will need to claim this exemption on your tax return when you file. said Mr. Loh.

Records of all rental property income and expenses, including purchase and sale records, must be kept. This ensures that all eligible deductions are captured when preparing tax returns and that capital gains tax can be calculated correctly when the property is sold.

“It is also important to note that when selling a property for over $750,000, sellers/vendors must have a clearance certificate or 12.5% ​​will be withheld.” said Mr. Loh.

Clearance certificate requests can take up to 28 days to be processed. To avoid delays, sellers should apply as soon as possible using the online form. Updating tax records, including all filings, expedites the assessment of an application and the issuance of a certificate. The certificates last for 12 months and if you sell more than one property in a year they can be used for multiple sales. Foreign residents are generally not eligible for a clearance certificate, but can request a change in the amount of the withholding.

Apply for a certificate and learn more at

Keep good records to prove everything

Records of rental income and expenses must be kept for five years from the date the tax return is filed or five years after a property is disposed of, whichever is longer.

“Get your books in order and start keeping records as soon as you make the decision to earn rental income. It makes tax time so much easier for you and your registered tax agent,” Loh said.

Adequate records should demonstrate how expenses were incurred for the rental property and how they relate to the generation of rental income. They must include the name of the supplier, the amount of the expense, the nature of the good or service, the date the expense was incurred and the date of the document.

“We may ask for proof of any claim you make, so good record keeping is the only way to ensure you can claim everything you are entitled to.”

“Remember that when your return is filed, you are responsible for any claims you make, not the registered tax agent.”

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