The 2022 tax season is well and truly underway, and the ATO is once again keeping an eye on key target areas in relation to individual tax returns. This year, one of the key target areas relates to rental properties including income, tax deductions, and record keeping requirements.

The ATO has found that this is an area of concern and one that is easy to get wrong, with extra care needed when lodging. The ATO Random Enquiry Program has found that 9 out of 10 tax returns that reported rental income and deductions contain at least one error and this occurs even with the assistance of a registered tax agent.

The ATO is encouraging all rental property owners to take extra care when reviewing their records before declaring income or deductions this tax season. For registered tax agents, there is also an emphasis on asking extra questions to ensure that clients are reporting their rental property information correctly.

The summary below outlines things you should consider when collating your rental property information for your tax return.

Rental Property Tax – Rental Income

The ATO’s ability to collect rental income data from a range of sources is becoming ever increasingly more accurate. 

When preparing tax returns, it’s extremely important that all rental income is included. Different rental income sources that may be included are:

  • Short-term rental arrangements,
  • Renting part of a home, and
  • Other rental-related income, such as insurance payouts and rental bond money that is retained.

For more information on how renting out your property on digital platforms refer to our article “Renting out your home on Airbnb – what tax should you be paying?“.

Rental Property Tax – Rental Deductions

Understanding your rental property expenses and when they can be claimed is very important for rental property owners.

It’s important to know that not all expenses are the same. Some can be claimed straight away, such as:

  • Rental management fees,
  • Council rates,
  • Repairs & maintenance,
  • Interest on loans, and
  • Insurance premiums.

Other expenses can be more complicated and only available to be claimed over a number of years such as borrowing expenses and capital works. Depreciating assets, such as a new dishwasher, costing over $300 are claimed over the effective life. 

The Importance of Record Keeping

Record keeping is just as important as understanding what income and deductions should be declared when completing your tax return.

It’s essential that records of rental income and expenses should be kept for 5 years from the date of tax return lodgements, or 5 years after the disposal of an asset (whichever is longer).

Adequate records should demonstrate how the expense was incurred for the rental property and the extent they relate to producing rental income. It’s important that records include:

  • The name of the supplier,
  • The amount of the expense,
  • The nature of the goods or services,
  • The date the expense was incurred, and
  • The date of the document.

Contacting Our Offices

These are just a few tips you can use for your tax return as a rental property owner. But, if you are seeking more clarity or support surrounding your rental property tax obligations, we are here to help.

Please don’t hesitate to contact one of our friendly team members for support on either (03) 5221 6399 or at info@davidsons.com.au.

This article was written by Manager Troy Nolan.

Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.