ATO Tax Season Priorities: Rental Property Deduction

As the end of the financial year approaches, the Australian Taxation Office (ATO) has released key guidance for the upcoming 2022-23 tax season.

The first key area to focus on for rental property deductions is important to maximize your claim and reduce the risk of ATO audits and subsequent adjustments.

Ensuring that relevant records are accurate, complete, and accessible is essential to effectively transition to this tax category and protect your finances. That way, you can go into tax season with confidence in your ability to approve your claim and meet ATO requirements.

Rental property deductions

Take note of the ATO’s findings on rental property deductions. Startlingly, the review of income tax returns reveals that a staggering 90% of rental property owners are making errors on their returns. One common mistake is omitting rental income altogether, while others involve missteps in property-related deductions. Examples include overclaiming expenses or mistakenly claiming for improvements made to private properties.

Interestingly, about 87% of rental property owners seem to rely on the expertise of a registered tax agent to prepare their income tax returns.

This highlights the importance of ensuring accuracy and consistency when it comes to deducting rental property. Keeping these findings in mind can help you avoid costly mistakes, accurately report rental income, and avoid unnecessary audits or fines.

As a landlord, you can claim a significant deduction when you file your tax return. However, it is important to recognize that your deductions can have a significant impact on your recordkeeping process. To help you navigate the complexities of downsizing a rental property and ensure compliance with the Australian Taxation Office (ATO), we’ll discuss important registration requirements. By understanding these requirements, you can maximize your costs and avoid potential pitfalls.

This highlights the importance of ensuring accuracy and consistency when it comes to deducting rental property. Keeping these findings in mind can help you avoid costly mistakes, accurately report rental income, and avoid unnecessary audits or fines.

Keep these records 

Proper records are very important when foreclosing on a rental property. Accurate and detailed records document your expenses and support the deductions claimed on your tax return. Failure to keep equity records may result in claims or issues being rejected during an ATO audit. To help you stay on track, let’s review the key documents and records you should keep.

Bank Statements and Loan Documents

  • Retain bank statements that demonstrate the interest charged on loans taken for your rental or commercial property. Loan documents are equally essential, providing evidence of your borrowing activities.

Land Tax Assessments:

  • Keep copies of land tax assessments received for your rental property.

Documents for Expenses and Income:

• Maintain documentation and receipts for various expenses, including:

• Advertising expenses for rental properties

• Bank fees related to property

• Council fees

• gardening expenses

• estate agent fees

• Maintenance and upkeep costs

Depreciating Assets and Capital Work Expenses:

Keep records related to the decline in value of depreciating assets, such as equipment, and any capital work expenses involving structural improvements. It is advisable to retain before and after photos of any capital works undertaken.

Travel costs:

• If you can claim travel and car expenses, keep documents related to the trip, including:

• Travel diary or notes detailing the nature, dates, places, times, and duration of your activities and journeys (required for journeys away from home)

• Flights, fuel, accommodation, meals, and other travel-related expenses

• Receipts for repairs and maintenance while travelling to or near the rental property.

Personal Use and Main Lifecycle:

• Keep records showing periods of personal use by you or friends and periods when the property was used as your primary residence.

Refinancing and Major Improvements:

• Keep loan documents if you refinance your property and keep documents, receipts, and photos for any major repairs.

Tenant Rentals and Property Sales:

• Keep copies of relevant documents such as tenant leases and sales agreements, conveyancing documents, and records of sales charges when you sell the property.

This tax year, the ATO is paying particular attention to interest charges. Understanding how to properly allocate loan interest costs when part of the loan is used for personal purposes is very important.

Hence in rental property deductions maintaining proper records is vital for landlords seeking to maximize their rental property deductions. By keeping organized and comprehensive records of expenses, loan documents, leases, and other relevant documents, you can confidently claim deductions and minimize the risk of ATO audits or complications. Take the time to establish effective record-keeping practices, ensuring compliance and peace of mind during tax time.