ATO focus on Rental Property Deductions

Nov 20, 2015 | Accounting & Tax, Business

Emily McPhee


The ATO has announced an increased focus on rental property deductions for the 2015 year. Due to this increased focus from the ATO we would encourage clients to double-check the information that they are providing to us to prepare their income tax returns and ensure that the claim can be substantiated in the event that the ATO may audit their income tax returns.

The following are areas that the ATO will be focusing on:

  • Holiday Homes – ATO will be reviewing excessive deductions claimed on holiday homes. In particular making claims for periods that the home is used for private use.
  • Splitting of income – Documentation will be required to support the splitting of income for jointly owned properties. Rental income that is being split unequally to gain a tax advantage will be disallowed.
  • Refinancing – loan documentation will be reviewed to support that the purpose of the loan is 100% in relation to the rental property. Drawdown’s for private use on rental property loans need to be proportioned and the interest amount on these refinanced amounts are not to be included as a deductible rental interest expense.
  • Repairs & maintenance – initial repairs to a newly purchased rental property will be disallowed. Repairs to bring a rental property up to an improved standard prior to renting out, also described as initial repairs are not deductible.

In relation to the ATO’s increased focus on rental property deductions there are a few simple rules that rental property owners should follow to ensure that they are getting their rental property deductions right.

Firstly ensure that you keep accurate records to ensure that you can substantiate the rental income & expenses that you are including in your income tax return.

Secondly deductions should only be claimed for the period that the property is genuinely available for rent.

Thirdly costs to repairs to correct damage defects of deterioration or renovation costs will not be claimable as an immediate deduction and will be claimed over a number of years.

If you would like to discuss this further please contact your LBW representative.

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