The Australian Taxation Office has announced that income and tax deductions from rental properties is one of the four key areas they will be focusing on this tax time.<\/p>\n
The ATO acknowledge that it\u2019s an area of tax assessment that\u2019s easy to get wrong and needs extra care when lodging.<\/p>\n
Their Random Enquiry Program has found that nine out of ten tax returns that reported rental income and deductions contain at least one error, even though most of those property owners were assisted by a registered tax agent.<\/p>\n
The ATO is therefore urging rental property owners to ensure they carefully review their records before declaring income or claiming deductions this tax time, and for registered tax agents to ask a few extra questions of their clients.<\/p>\n
ATO assistant commissioner Tim Loh explained that registered tax agents can only work with the information they gather from their clients, and we know some clients won\u2019t know everything they need to tell their agent.<\/p>\n
\u201cWe don\u2019t expect agents to be Sherlock Holmes, but we do expect them to ask the right questions to ensure their client\u2019s return is right,\u201d he said.<\/p>\n
Mr Loh said that rental property owners are urged to ensure they know what income they need to declare and what can be claimed as a deduction.<\/p>\n
\u201cWe are concerned about mistakes, and in particular, leaving out income or deliberate over-claiming of rental property deductions this year,\u201d he said.<\/p>\n
\u201cGetting it right the first time, will ensure you receive the tax refund you are owed, and avoids us knocking on your front door down the track.\u201d<\/p>\n
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Include all rental income<\/strong><\/p>\n The ATO receives rental income data from a range of sources including sharing economy platforms, rental bond authorities, property management software providers, and state and territory revenue and land title authorities.<\/p>\n \u201cThe amount of data we access grows each year, making it easier and faster for us to spot any rental income that you have charged your tenants, but haven\u2019t declared,\u201d Mr Loh said.<\/p>\n \u201cWhen preparing tax returns, make sure all rental income is included, such as from short-term rental arrangements, renting part of a home, and other rental-related income like insurance payouts and rental bond money retained.<\/p>\n \u201cIncome and deductions must be in line with a rental property owner\u2019s ownership interest, which should generally mirror the legal documents.\u201d<\/p>\n \n Get your expenses right<\/strong><\/p>\n Not all expenses are the same. Some can be claimed straight away, such as rental management fees, council rates, repairs, interest on loans and insurance premiums.<\/p>\n Other expenses such as borrowing expenses and capital works need to be claimed over a number of years.<\/p>\n Capital works can include replacing a roof, or a new kitchen renovation and depreciating assets such as a new dishwasher or new oven costing over $300 are also claimed over their effective life.<\/p>\n Refinancing or redrawing on a rental property loan for private expenses such as holidays or a new car, means that the amount of interest relating to the loan for the private expense can\u2019t be claimed as a deduction.<\/p>\n If income from a rental property in a holiday location is earnt, it needs to be included in tax returns.<\/p>\n Mr Loh said that their 2022 Tax Time Toolkit for Investors also contains a number of fact sheets for landlords, including Top 10 tips to help landlords avoid common tax mistakes.<\/p>\n \n Selling a rental property<\/strong><\/p>\n When selling a rental property, capital gains tax needs to be considered and any capital gains or capital losses need to be reported.<\/p>\n When calculating a capital gain or capital loss, it\u2019s important to get the cost base calculation right.<\/p>\n Cost base is usually the cost of the property when purchased and any costs associated with acquiring or selling it.<\/p>\n These can be things like stamp duty, legal fees, valuations and real estate sales fees.<\/p>\n Any capital works claimed as deductions may also need to be subtracted from the cost base.<\/p>\n \u201cIf you\u2019ve sold a rental property that was once your home, you may be entitled to partially claim the main residence exemption.<\/p>\n \u201cYou will need to claim this exemption in your tax return when you lodge,\u201d Mr Loh said.<\/p>\n Records of all income and expenses relating to rental properties, including purchase and sale records, must be kept.<\/p>\n This ensures all eligible deductions are captured when preparing tax returns and capital gains tax can be calculated correctly when the property is sold.<\/p>\n \u201cIt\u2019s also important to note that when selling any property for more than $750,000, vendors \/ sellers must have a clearance certificate otherwise 12.5 per cent will be withheld.\u201d Mr Loh said.<\/p>\n Clearance certificate applications can take up to 28 days to process so to avoid delays, sellers should apply as early as practical using the online form.<\/p>\n \n