ATO issues ‘need to know’ for rental property owners at tax time


It’s nearly that time of year again; most dread it, accountants live for it. That’s right – it’s tax time.

In a year that has seen disruption after disruption, the Australian Tax Office (ATO) has warned rental property owners that despite bushfires, floods and coronavirus, they cannot avoid tax. The ATO has released the ‘need to know’ for this year’s tax time, and whatever the circumstance, keeping a record of all expenses is a vital first step.

“Without good records, you will find it difficult to declare all your rental-related income in your tax return and work out what expenses you can claim as deductions,” said ATO Assistant Commissioner Karen Foat.

The ATO’s number one cause of disallowing a claim is taxpayers being unable to produce receipts or other documents to support a claim.

Reduced rental income

Many tenants are paying reduced rent due to COVID-19 affecting their income. Rent should be included as income at the time it is paid – if payments by tenants are deferred until next financial year, these payments don’t need to be included until you receive them.

Some owners may have rental insurance that covers a loss of income, and the ATO says any payouts from these types of policies are assessable income and must be included in tax returns.  

If you have deferred loan repayments on a mortgage, the ATO says rental property owners are still able to claim interest being charged on the loan as a deduction – even if the bank defers the repayments.

Short-term rentals

Deductions will still be available for short-term rental properties where demand has been adversely affected by COVID-19 or natural disasters, provided the property was still genuinely available to rent. Deductions cannot be claimed if the owners decided to use the property for private purposes, including if you or family and friends moved into the property because of COVID-19 or bushfires.

“Generally speaking, if your plans to rent a property in 2020 were the same as those for 2019, but were disrupted by COVID-19 or bushfires, you will still be able to claim the same proportion of expenses you would have been entitled to claim previously,” Ms Foat said.

The ATO says a reasonable approach to apportioning expenses is to base it on the previous year’s usage pattern, unless you can prove it was genuinely available to rent for a longer period in 2020.

Deductions for vacant land

Expenses for holding vacant land are no longer deductible for individuals intending to build a rental property on that land. This also applies to land for which you may have been claiming expenses in previous years. 

The ATO says, however, this does not apply to land used in a business, or if the land is vacant because of an exceptional circumstance such as a fire or flood. For example, if your rental property was destroyed by a bushfire and you are currently rebuilding, you can claim the costs of holding the vacant land for up to three years while you rebuild.

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