Rental property owners on ATO radar

The Australian Tax Office has announced that it will be paying close attention to rental property owners during this tax season, especially in areas where excessive interest expenses are claimed and where there is an incorrect apportionment of rental income and expenses between rental property owners.

The ATO will also be focusing on those who make incorrect claims for newly purchased rental properties and those who own holiday homes that are genuinely not available for rent.

The Tax Office has advised rental property owners that they need to better understand their obligations to get their claims right.

Those who claim deductions for their rental property need to include all rental income and ensure that their property was genuinely available for rent when the expense was incurred. Owners must also make sure to apportion any deductions to take any private use into account and have records for the claims made.

Some examples of incorrect practices the ATO will be looking out for include:

• Occasionally advertising a new purchased rental property (that has not returned any rental income) on community notice boards and online. The ATO does not consider this a genuine way to actively seek tenants or genuinely advertise the property for rent.

• The higher earner of a couple who jointly own a rental property claiming the larger proportion of the property’s expenses. Expenses must reflect ownership interest.

• Reporting high rental interest claims that are not supported by evidence such as bank statements.

• Providing false receipts for property management fees.

• Inappropriately claiming a deduction for repairs to defects present in a newly purchased property. Capital works and borrowing expenses need to be spread over several years.