Rental Properties – ATO Area of Focus

In the most recent Federal Budget, it was announced that the Australian Taxation Office will receive $89.6 million to extend its personal income tax compliance program and expand its scope to target emerging areas of risk and tax avoidance.  

A tax gap of approximately $9 billion has been identified as a result of omitted rental income and over claimed expenses.

We highlight below some of the key areas the ATO will be focusing its audit program with respect to rental properties.

1.Apportionment of Interest expenses – Where the loans have been used in part for private purposes. 

We highly recommend keeping investment loans separate to personal or housing loans for this reason.

2.Repairs versus Improvements (Capital Works) – The characterisation of a cost as either a repair (immediately deductible) or an improvement (deductible over time). 

Where claiming large costs for repairs please ensure you keep appropriate records (including photos and reports of the work undertaken).

3.Apportionment of Costs – Short-term & holiday rentals

Note that where a property is not available for rent for a period of time or used personally by the owner then expenses cannot be claimed for costs incurred during those periods. 

With regards annual costs such as body corporate, rates, interest and depreciation these costs need to be apportioned and reduced for the relevant time the property is either not available for rent or used personally.

4.Capital Gains Tax Impact – Place of Residence partially rented

Whilst a person’s main residence is normally exempt from capital gains tax renting out part of your home will most likely mean that a portion of your property will not be eligible for the main residence exemption and subject to capital gains tax.

We appreciate that some of these matters are technical in nature and are onerous on taxpayers in making sure they have appropriate documentation supporting their claims.  If you have any concerns or questions about your rental property disclosures please do not hesitate to contact us on (07) 3910 5675 or [email protected].

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