Tax Tips: ATO warning on rental properties

Written by: Evan Lowenstein
The ATO has issued a media release reminding property investors to take care when submitting their tax returns. Clients are reminded to be careful when preparing the information with many holiday homeowners submitting their tax returns with these common mistakes:

  • neglecting to declare all their income – this includes failing to declare any capital gains from selling an investment property. The ATO is also expanding the rental income data it receives directly from third-party sources such as sharing economy platforms, rental bond authorities, and property managers.
  • rental deductions that seem unusually high – the ATO is scrutinising returns that are questionable using its data analytics. Property investors should expect claims denied without proper receipts or for making ineligible claims to start with;
  • interest charges on personal loan amounts – interest on a loan or money redrawn from a rental property mortgage for personal use, such as buying a boat, or going on a holiday is not deductible;
  • immediate claims for the full amount for capital works – the cost of capital works including a new building or an extension, renovations or structural improvements should be spread over a number of years;
  • rental income during COVID-19 – as a general guidance, rental income should only be declared as income in the financial year in which the amounts are received, i.e. deferred rental should not be declared until such amounts are received.