Navigating the ATO’s Scrutiny on Rental Properties.

With the Australian Taxation Office (ATO) revealing that a staggering 90% of rental property owners have inaccuracies in their tax returns, it’s crucial for owners and practitioners to be meticulous this tax season. The ATO continues to intensify its focus on rental properties, emphasizing the importance of compliance with tax obligations.

Inclusive Rental Income Reporting

The ATO mandates the inclusion of all forms of rental income in the tax return. This encompasses income derived from short-term rentals, partial home rentals, and other related revenues such as retained rental bond money and insurance payouts.

Diverse Treatment of Rental Property Expenses

The ATO underscores the varied treatment of rental property expenses for tax purposes. It’s pivotal to discern that not all expenses are deductible immediately; some may be claimed over time, while others might not be deductible at all. For instance, depreciation deductions for certain second-hand depreciating assets in residential rental properties are non-deductible.

Distinction Between Repairs and Improvements

The ATO has issued advisories on the importance of distinguishing between repairs and improvements. Genuine repairs related to wear and tear from renting out the property are usually immediately deductible, whereas capital works deductions are claimed over time. Works considered improvements or replacements of entire structures are normally not regarded as repairs.

Interest Expenses and Data Matching Program

The ATO’s recent implementation of a data matching program on residential investment property loans has put interest expenses under the spotlight. The ATO is scrutinizing the correct apportioning of interest deductions, especially for loans used or refinanced for private purposes.

Apportioning Deductions for Mixed-Use Properties

Owners need to apportion deductions for properties used both personally and as rental properties, such as holiday homes. Additionally, if a property is rented to relatives below market rate, deductions are generally allowed up to the amount of the assessable rental income.


In light of the ATO’s intensified scrutiny, rental property owners and practitioners are urged to exercise utmost diligence in their tax returns. Ensuring accurate and comprehensive reporting of income and adherence to the stipulated guidelines on deductions is paramount to avoid discrepancies and ensure compliance with tax obligations.

Stay Informed with Business Edge Advisors

At Business Edge Advisors, we specialize in providing expert accounting advice and solutions. Stay informed and navigate the complexities of tax obligations with ease and confidence. For more information and professional advice, contact us today.