Rental Property Deductions Are You at Risk

ATO Cracks Down on Rental Property Deductions: Are You at Risk?

The Australian Taxation Office (ATO) has intensified its focus on rental property deductions for the 2024–25 tax year, warning that a large number of claims are still being made incorrectly. With over 9 in 10 rental schedules containing errors, the ATO has labelled this a key compliance risk area — and it’s using advanced data-matching and AI tools to spot incorrect or inflated claims.

If you own a rental property, now is the time to review your records and ensure your tax return is accurate.

🔍 What is the ATO targeting?

The ATO has flagged several high-risk areas:

❌ Interest Deductions

Only interest related to the income-producing portion of your loan is deductible.
Using loan redraws for personal expenses (like holidays or renovations) must be excluded.

❌ Repairs vs Capital Works

Repairs to fix wear and tear are deductible.
Improvements or "initial repairs" must be claimed over time via capital works depreciation.

❌ Private Use & Short-Term Rentals

Expenses must be apportioned if the property is used privately or listed on short-term rental platforms (e.g. Airbnb).
If the property was vacant by choice, deductions may not apply.

❌ Shared Ownership

Claims must be split in line with ownership — not based on who paid what.

🧾 Examples of Errors That Trigger ATO Reviews

Claiming 100% of interest when the loan includes personal redraws
Deducting initial renovation costs that should be capitalised
Not apportioning rental costs for personal stays or off-season vacancies
Claiming travel expenses (which are no longer allowed)
Not keeping sufficient records of short-term rental usage and guest stays

📌 Key Reminders for Property Owners

✔ Keep detailed receipts and loan statements
✔ Maintain a clear rental diary (especially for short-term rentals)
✔ Distinguish between repairs, initial repairs, and improvements
✔ Ensure interest deductions are traced to the income-producing purpose
✔ Use a qualified tax adviser who understands property rules

ATO’s Message Is Clear

"If your claims are incorrect, you can expect to be contacted — and penalised."

The ATO is urging all rental property owners to review their deductions and keep full documentation.

Let us help you stay compliant while maximising your eligible deductions.

Disclaimer for External Distribution Purposes:

The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Falconbridge office or Luera office in Blue Mountains office to arrange a one-on-one consultation. Just Book Free Consulation up on the right to find the appointment options.

Yan Qi CA

Mobile: 0403 050 779

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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