Get Your Rental Right this Tax Time: ATO's Crucial Reminders for Property Owners

The Australian Taxation Office (ATO) has issued a stern reminder to rental property owners: get your tax returns right. According to the ATO, nearly 9 in 10 landlords make mistakes, often costly ones, when lodging their rental income and deduction claims. These errors don’t just affect individual taxpayers.

They divert funds from vital community services like schools, hospitals, and local sports programs.

Rental Income: Report Everything, No Exceptions

Many taxpayers fail to report all sources of rental income. This includes:

• Full or part-home rentals

• Short-term accommodation (Airbnb, Stayz)

• Rental bond retentions

• Insurance payouts relating to rent

The income should reflect your legal ownership percentage and must be reported in the year it’s received, not when passed on by a property manager. Critically, report the gross income—not the amount after the property manager deducts expenses. Double dipping on deductions, such as claiming rates or maintenance already subtracted by a manager, is a red flag.

Rental Expenses: What You Can and Can’t Claim

Rental deductions fall into three categories:

1. Non-Deductible:

• Private expenses

• Capital items (e.g. installing a new kitchen or buying second-hand depreciating assets post-2017)

2. Immediately Deductible:

• Interest on loans (apportioned correctly)

• Council rates, maintenance, and repairs

• Assets under $300

3. Deductible Over Time:

• Capital works (e.g. structural improvements)

• Borrowing costs

• Depreciation on qualifying assets

Interest deductions are under increased ATO scrutiny. If part of your loan was used for private reasons or refinancing unrelated to the rental property, only the investment-related portion is deductible.

Repairs vs Improvements: Don't Mix Them Up

Misclassifying property work can lead to overstated deductions.

• Initial Repairs (present at time of purchase): Capital works, not immediately deductible

• Ongoing Maintenance: Immediate deductions (e.g. fixing a leaking tap)

• Improvements: Replacing a bathroom or adding new rooms are capital works and must be claimed over several years

Short-Term Rentals: Apportion with Evidence

If you rent a holiday home or part-time Airbnb, you must apportion expenses for private use. Even if a portion of the property is reserved or used by friends, that changes your claimable deductions.

Discounts given to family or mates? Your deduction is capped at the actual income received. And be warned, setting unrealistic tenant conditions (e.g. “no children” in a holiday rental zone) could void your claim unless you prove genuine efforts to rent.

ATO’s Data Matching Is Watching

Technology is closing the gap. The ATO’s Residential Investment Property Loan and Landlord Insurance data-matching programs are now actively verifying the accuracy of reported income and deductions. Cross-checks with bond lodgements, property sales, and management agreements mean mistakes are easier to detect than ever.

Tax agents are also on notice. If you're using one, make sure you’re supplying accurate records, and ensure they’re asking the right questions, not just ticking boxes.

Final Word

If you’ve made an honest mistake, correct it promptly. But if the ATO finds deliberate overclaims, penalties will apply. As the property market becomes more closely monitored, transparency and accuracy aren't just best practices, they're your responsibility.

For help ensuring your rental claims are above board, get in touch with the expert tax team at Dolman Bateman. We've been navigating complex property taxation for over 30 years.

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.