Key issues the ATO is checking for with your investment property at tax time

The ATO has declared rental deductions are a top priority in its auditing process – and it’s been allocated more funds from the government, to carry out this task.

If you’re renting out a room or property, you need to ensure everything is claimed properly in your tax return.

Any mistakes are very likely to be caught – and anything deemed as a deliberate attempt to over-claim could see you facing a hefty penalty.

What is the ATO focusing on?

Assistant Commissioner Gavin Siebert has stated the ATO is concerned about the extent of non-compliance in the rental deductions area.

‘A random sample of returns with rental deductions found that nine out of 10 contained an error,’ he said.

We will be looking very closely at claims this year.’

According to the ATO, there will be a specific focus on:

  • Over claimed interest
  • Capital works claimed as repairs
  • Incorrect allocation of expenses for holiday homes let out to others
  • Omitted income from accomodation sharing

How do I make sure I claim correctly?

The ATO has put together this checklist, which outlines the key issues they are checking at tax time.

Is loan interest being claimed correctly?

If you took out a loan to purchase a rental property, you can claim interest (or a portion of the interest) as a deduction. However, if you use some of the loan money for personal use such as paying for living expenses, buying a boat or going on a holiday, you can’t claim the interest on that part of the loan. You can only claim the part that relates to the rental property.

Do you know the difference between capital works and repairs?

Repairs or maintenance to restore something that’s broken, damaged or deteriorating are deductible immediately. Improvements or renovations are categorised as capital works and are deductible over a number of years.

Initial repairs for damage that existed when the property was purchased, such as replacing broken light fittings or repairing damaged floor boards, can’t be claimed as an immediate deduction but may be claimed over a number of years as a capital works deduction.

If you want more information about capital works deduction, the ATO has a detailed fact sheet on this topic.


Do you have a holiday home?

A holiday home is different to a rental investment property. A holiday home is generally a private asset you use for family holidays, for which you cannot claim expense deductions.

However if you let your property out at ‘mates rates’ (ie below market rates to family and friends) you can claim expenses up to the amount of income you receive. If your property is genuinely available for rent – which means making it available during key holiday periods, keeping it in a condition that people would want to rent it, and not unreasonably refusing tenants – it becomes more like a rental investment property and you can claim deductions for the days it is either rented or is genuinely available.

Have you kept records?

The number one cause of the ATO rejecting a claim is taxpayers being unable to produce receipts or other documents to support a claim. Furnishing fraudulent or doctored records will attract higher penalties and may also result in prosecution.

How can an accountant help?

Glad you asked!

We can take the headache out of ensuring you are compliant – and give you the peace of mind in knowing everything has been done correctly.

All you need to do is provide us with the documents we need for your tax return, and file it for you, while letting you know what you can claim – and what you can’t.

That way you will still get a maximum return – while ensuring your claim is legitimate.

Contact our team to make an appointment – we’d love to help.

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