Taxpayers need to get their ‘rental right’
The Australian Tax Office (ATO) reminds rental property owners and their tax agents to take care when lodging their tax returns.
When preparing their tax returns, taxpayers should make sure all rental income is included, including income from short-term rental arrangements, renting part of a home, and other rental-related income.
Rental income must be reported:
- in the year the tenant pays, rather than when the taxpayer’s agent transfers it to them; and
- as the gross amount received (i.e., before the property manager’s fees and other expenses they pay on the taxpayer’s behalf are taken out).
There are three categories of rental expenses, as follows:
Expenses where taxpayers cannot claim deductions – e.g., expenses arising from a taxpayer’s personal use of their property, and expenses of a capital nature;
Expenses where taxpayers can claim an immediate deduction in the income year they incur the expense – e.g., interest on loans, council rates, general repairs and maintenance, and depreciating assets costing $300 or less; and
Expenses where taxpayers can claim deductions over a number of income years – e.g., capital works and borrowing expenses.
The Australian Tax Office (ATO) is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes, or the loan was re-financed for some private purpose.
Taxpayers should ensure they have the records to demonstrate they incurred expenses for their rental property and the extent to which the expenses relate to producing rental income.
Taxpayers also need to apportion their deduction for rental expenses when the property (or part of it) is not being used to produce rental income, such as when they use it personally or reserve it for friends or family.
Ref: ATO website, Media releases, 4 September 2023
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