The tax office is currently targeting rental property income and deductions.
They are receiving information from third parties such as insurance providers and real estate agents and comparing these to income tax returns to ensure you are declaring the income.
They are then comparing your average weekly rent to that of the area and targeting those that appear to be under the average.
If you rent a residential property all income received in relation to that property needs to be included in your tax return.
This includes insurance money, rental bond money retained or reimbursements for repairs, government rebates for solar systems etc.
If you are renting at below market value to a family member the ATO will have concern if you are making a loss on this rental property.
If the property is owned with others, the rent and deductions should be apportioned in the same percentage as your legal interest in the property.
Generally income from rental properties is not classed as business income so small business incentives such as the immediate asset write off do not apply.
Costs allowed as a tax deduction against your rental income include advertising for a tenant, body corporate fees, cleaning, council rates, insurance, interest on loans, agent's fees, repairs and maintenance etc.
Some expenses may need to be apportioned where the property is partly used for private use eg. a beach house.
In some cases the interest paid on your loan may also need to be apportioned if you have made a redraw on the loan and that money was used for private purposes.
Repair and maintenance costs are only deductible fully if they relate directly to wear and tear or other damage that occurred as a result of renting out the property.
Costs incurred to fix damage done prior to the property being first rented need to be capitalised and claimed as a capital deduction of 2.5 per cent per year.
If you cease to rent a property and find damage that needs to be repaired this cost is still a deduction even though the property is no longer rented, as long as the repairs are completed prior to the end of that tax year.
Expenses you are unable to claim against the rental income include the acquisitions costs of the property, expenses incurred whilst the property was not available for rental, travel expenses and depreciation for second hand assets.
- Helen Warnock is a partner at Kennas Chartered Accountants, Rockhampton. This article offers general information only. You should consult your personal advisor to seek advice relevant to your personal circumstances before taking action.
