The ATO has increased its focus on rental property deductions, and encourages rental owners to double-check their claims are correct before lodging their tax returns. In particular, the ATO continues to pay close attention to:
- spouses splitting rental income, and deductions for jointly owned properties that are not supported;
- claims for repairs and maintenance shortly after a property is purchased;
- interest deductions claimed for the private proportion of a loan; and
- excessive deductions claimed for holiday homes.
The ATO advises that if you own a holiday home that you rent out, you can claim expenses for the property based on the proportion of the income year it was rented out or was genuinely available for rent. You must apportion the expenses if the property is used for private purposes, or used by family or friends free of charge or for less than market rent, for part of the year.
The ATO is also aware that a growing number of taxpayers are participating in the “share economy” by renting out a room or their house for short periods. You need to declare any rental income you receive, including this type of share economy income, and can only claim expenses related to the part of your house you rent out. Such expenses need to be apportioned according to the amount of private versus rental use of your property. You can, however, claim 100% of any fees or commissions charged by the rental facilitator or administrator.
To avoid making mistakes when claiming deductions, follow these tips from the ATO:
- It is important for all property owners to keep accurate records. This helps to ensure you declare the right amount of rental income and have evidence for the claims you make.
- Rental property owners should only claim deductions for periods when the property is rented out or is genuinely available for rent. If your property is rented out at below market rates, for example to your family or friends, your deduction claims must be limited to the income you earned while the property was rented.
- Costs to repair damage, defects or deterioration existing at purchase, or renovation costs, can’t be claimed as an immediate deduction. These amounts can be deducted over a number of years
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source: Thomson Reuters 2016