Do you own rental property? It’s vital to ensure you are accurately reporting your rental income and expenses. According to recent findings, a significant portion of rental property owners are not getting their tax returns right. To help you navigate the intricacies of tax on rental properties and maximise your returns, let’s break down the key insights provided by the ATO.
1. Reporting Rental Income
Begin by meticulously reporting all your rental income. This includes income from short-term rentals, part of your residence, and any other rental-related earnings like insurance payouts and rental bond money. Accuracy is key, so ensure your reporting aligns with your ownership interest and legal documentation.
2. Understanding Rental Expenses
Rental expenses are classified into three categories:
Non-deductible Expenses:
Personal expenses and capital costs fall under this category.
Immediate Deductions:
Certain costs, such as loan interest, council rates, and minor repairs, can be claimed in the same year they are incurred.
Deductions Over Time:
Capital works, borrowing expenses, and the decline in value of assets can be claimed as deductions over multiple income years, provided specific criteria are met.
3. Managing Interest Expenses
Properly assigned interest expenses is crucial. You can claim interest only on the portion of a loan used to purchase a rental property. If the loan was partly used for private purposes, ensure you claim only the relevant portion that contributes to producing rental income.
4. Repairs, Maintenance, and Improvements
Distinguishing between repairs, maintenance, and improvements is essential. Initial repairs for damage existing at the time of property purchase are not immediately deductible but can be claimed as capital works deductions over time. Routine repairs and maintenance are immediately deductible, while substantial improvements, like renovations, are deductible over time.
5. Handling Short-Term Rentals
For those with short-term rental properties, accurate expense sharing is crucial. If you use the property for personal purposes or reserve it for friends or family, ensure you allocate expenses accordingly. Accurate record-keeping is essential, particularly if you have offered reduced rates to friends or family.
6. Leveraging Data Matching
The ATO uses advanced data-matching capabilities to validate rental property-related data. Programs like Residential Investment Property Loans (RIPL) and Landlord Insurance (LI) data matching help ensure accurate reporting of income and deductions. Collaborate with registered tax agents to provide correct information for precise tax returns.
In Conclusion
As an expert in business consultation, accounting, and taxation services, we understand the shade of managing rental properties and the complexities of tax implications. By adhering to these guidelines, you can navigate the tax season effectively, ensuring compliance and optimising your returns. For personalised assistance and expert guidance tailored to your needs, reach out to Finacc Future. We are here to help you navigate tax season, maximise returns, and achieve your financial goals.
For more information on rental properties, visit ato.gov.au/rental.