The ATO reminds rental property owners and their tax agents to take care when lodging their tax returns this tax time. When preparing their tax returns, taxpayers should make sure all rental income is included, including income from short-term rental arrangements, renting part of a home, and other rental-related income.

Rental income must be reported in the year the tenant pays, rather than when the taxpayer’s agent transfers it to them, and it must be reported as the gross amount received (i.e., before the property managers fees and other expenses they pay on the taxpayer’s behalf are taken out).

There are three categories of rental expenses, as follows:

• Expenses where taxpayers cannot claim deductions – e.g., expenses arising from a taxpayer’s personal use of their property and capital expenses;
• Expenses where taxpayers can
  claim an immediate deduction in the income year they incur the expense
  – e.g., interest on loans, council rates, general repairs and maintenance, and depreciating assets costing $300 or less; and
• Expenses where taxpayers can claim deductions over a number of income years – e.g., ‘capital works’ deductions and borrowing expenses incurred when setting up a loan.

The ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes, or the loan was re-financed for some private purpose.

Taxpayers should ensure they have the records to demonstrate they incurred expenses for their rental property and the extent to which the expenses relate to producing rental income.

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