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.

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 Yan Qi CA

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