They say you should
beware of common tax traps that can delay refunds or lead to an audit costing
you time and money.
In 2019-20, over 1.8
million Australians owned rental properties and claimed $38 billion in
Tim Loh said that the most common mistake rental property and holiday
homeowners make is neglecting to declare all their income.
This includes failing to
declare any capital gains from selling an investment property.
Mr. Loh explains:
"To put it simply, you
should expect tax consequences for any property that you earn income from that
isn’t your main residence.”
We are expanding the
rental income data we receive directly from third-party sources such as sharing
economy platforms, rental bond authorities, and property managers. We will
contact taxpayers about income they’ve received but haven’t included in their
This will mean they need
to repay some of their refund. The ATO often allows taxpayers who have made
genuine errors to amend their returns without penalty. But deliberate attempts
to avoid tax on rental income will see the ATO take action,”
People should remember
that there’s no such thing as free real estate when it comes to their tax
returns. Our data analytics scrutinise returns for rental deductions that seem
unusually high. We will ask questions, and this may lead to a delay in
processing your return.”
So far we have adjusted
more than 70% of the 2019-20 returns selected for a review of rental
Most people we contact
about their rental deductions are able to justify their claims.
However, there are
instances where we have to knock back claims where taxpayers didn’t keep
receipts claimed for personal use, or claimed for ineligible deductions.”
The ATO often rejects
claims for interest charges on personal loan amounts and immediate claims for
the full amount for capital works (for example, a kitchen renovation), so it is
vital that you have good records.
If you take out a loan to
buy a rental property and rent it out at market rates, the interest on that
loan is deductible.
However, if you redraw
money from that mortgage for personal use, such as buying a boat, or going on a
holiday, you can’t claim the interest on that part of the loan.
The ATO also sees
taxpayers claiming capital works, as a lump sum rather than spreading the cost
over a number of years.
Capital works include a
new building or an extension, renovations, or structural improvements.
The cost of repairs for
wear and tear to the property is deductible immediately if they are to replace
or fix existing items, such as curtains, without upgrading them.
However, improvements or
capital expenses, such as a kitchen renovation are not deductible immediately.
If you are unsure, you
really must seek professional advice.
Reduced rent during COVID-19
The ATO knows that
residential rental property owners may be unsure about how COVID-19 has
impacted their tax returns.
For example, you may have
negotiated (at arm’s length) reduced or deferred rent.
You only need to declare
the rent you have received as income.
If payments by your
tenants are deferred until the next financial year, you do not need to include
these payments until you receive them.
Back payments for
deferred rent or insurance for lost rent should be declared as income in the
financial year in which you receive the amounts.
While your rental income
maybe reduced, you can still claim normal expenses made on your property as
long as the reduced rent is determined at arms’ length and considers current
Travel restrictions may
have also affected demand for short-term rental properties.
Generally, if your plans
to rent a property in 2020-21 were the same as previous years, but were
disrupted by COVID-19, you will still be able to claim the same proportion of
This only applies where
the property was not used privately.
If you, your family, or
friends staying at the property for free or at a reduced rate, you won’t be
able to claim or will only be able to claim a portion of these expenses.
For more information on
rentals, see the ATO’s 2021 investors toolkit and the ATO depreciation and capital allowances tool –
This tool allows rental property owners to calculate the depreciation amounts
for rental properties.
For everything else tax
time, visit ato.gov.au/TaxEssentials
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Friday, 6 August 2021