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ATO reminds rental property owners on claiming tax

The Australian Taxation Office (ATO) has issued a timely reminder that it is keeping a close eye on deductions claimed by rental property owners, especially those with properties located in popular holiday destinations.

Last year the ATO identified a significant number of errors relating to deductions claimed for rental properties located in holiday regions. The ATO further reminds property owners that enhanced technology and data matching capabilities are allowing them to more easily identify suspect claims.

In general, property investors can claim a deduction for related expenses during the period when a property is rented or is genuinely available for rent. Owners are not prohibited from using their investment property for a private holiday, but deductions would need to be adjusted appropriately as the property would not be genuinely available for rent during such periods.

Another area of concern is where the property is being rented out at ‘mate’s rates’, rather than the full market rate. In these cases, allowable deductions will be limited to the discounted rent that is charged.

Click here for our article on the list of common tax deductions for property investments


Tips to substantiate claims

It is imperative that rental property owners are able to provide evidence that a property is being rented or is genuinely available for rent. Accurate records of expenses incurred are a must in order to substantiate deductions claimed.

Expenses may still be claimed even if the property isn’t rented out, provided the property is genuinely available for rent. The ATO provides the following guidelines to assist you in establishing this.

• Advertising the property – Owners should ensure they maximise exposure of the property to potential tenants by advertising as widely as possible, including online sites. Properties advertised solely by word of mouth or merely listed with a real estate agent are less likely to be considered genuinely available for rent.

• Location and condition of the property – The property should be in a location and condition that tenants would want to rent. If the property is poorly maintained, or if it is in an isolated or inaccessible area, the ATO may not consider it to be genuinely available for rent and would not allow claims for deductions.

• Renting out the property at market rates – The property may not be considered to be genuinely available for rent (and tax deductions may not be allowed) if an owner demands unreasonable conditions, such as setting the rent above market rates as this reduces the likelihood of the property being rented out.

• Rejecting potential tenants – Owners rejecting interested potential tenants without good reason may be an indication that there is no genuine intention to rent out the property and earn income from it, but rather an indicator that the property is for private use. In such case, the ATO would deny claims for deductions in relation to the property.

If you would like to discuss your investment property further to ensure you are legitimately maximising tax reduction opportunities, please speak to our tax accountants on (08) 9301 2200 or send an enquiry by clicking here .

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