Rental Property Owners lodging Tax Returns

Posted 26 Oct '23

Rental property owners need to get their 'rental right' when lodging their Tax Returns. 

The ATO reminds rental property owners and their tax agents to take care when lodging their tax returns this tax time.

ATO Assistant Commissioner Tim Loh said that the ATO’s review of income tax returns show nine out of ten rental property owners are getting their return wrong.

“Landlords and their registered tax agents need to take extra care when lodging this year. We often see rental income being left out, or mistakes being made with property related deductions – like overclaiming expenses or claiming for improvements to private properties,” he said.

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
  • as the gross amount received (i.e., before the property manager's fees and other expenses they pay on the taxpayer’s behalf are taken out).

Mr Loh reminds rental property owners not to double dip their deductions, saying “Make sure you are declaring your gross income. We have seen some clients declaring their net rental income after the property manager has paid their expenses and then they have claimed deductions like rates and repairs all over again.”

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 expenses of a capital nature;
  • 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 and borrowing expenses.

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.

Taxpayers also need to apportion their deduction for rental expenses when the property (or part of it) is not being used to produce rental income, such as when they use it personally or reserve it for friends or family.

Around 87% of taxpayers who own rental properties use a registered tax agent to lodge their return. It is important that taxpayers provide their registered tax agent with the right information to prepare their return correctly, and for registered tax agents to ask the right questions of taxpayers.

Taxpayers are responsible for what they include in their tax return, even when using a registered tax agent. Taxpayers can refer to ‘Get your rental right this tax time’ on the ATO’s website for more information.

At Trinity Advisory, we specialise in tax accounting, advisory services, and business coaching for small businesses located in and around Cairns (116 Mulgrave Road, Parramatta Park QLD 4870) and the Sunshine Coast (2/8 Maroochydore Road, Maroochydore QLD 4558).

Should you need any taxation or accounting advice for your business, get in touch with Trinity Advisory today. Our team of expert Business Accountants, Advisors and Coaches are here to help!

Ref: ATO website, Media releases, 4 September 2023


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