Rental Property Tax Tips for Investors

Once again, income and deductions from rental properties have been highlighted by the Australian Taxation Office (ATO) as one of four key areas of focus this tax time. The ATO has urged rental property owners to carefully review their records and ensure they know what income is required to be declared and the deductions that can be claimed. The ATO Random Enquiry Program has found that nine out of ten tax returns which included a rental property contained at least one error. For any medicos who have rental properties, the following issues are on the ATO’s radar.

Declaring Income

The ATO uses a range of sources to access your rental income information. These include rental income data from:

  • Sharing economy platforms;
  • Rental bond authorities;
  • Property management software providers; and
  • State and territory revenue and land title authorities.

With ATO access to this type of information increasing every year, it is more important than ever to ensure that all of your income is being declared.

Income can be derived from a range of sources, not just regular rent, such as;

  • Short-term rental arrangements, like Airbnb;
  • Renting part of a home;
  • Insurance payouts; and
  • Rental bond money retained.

Additionally, income (and deductions) must be in line with the ownership interest of the property based on legal documents.

Know your Expenses

There are many different types of expenses that can be claimed for your rental property, however, expenses are not all treated in the same way. Some expenses can be claimed immediately and others need to be claimed over a number of years.

Expenses that can be claimed immediately include:

  • Rental management fees;
  • Council rates;
  • Repairs;
  • Interest on loans; and
  • Insurance premiums.

If a rental property loan is refinanced or redrawn for private expenses (a holiday or new car), only the portion of interest directly related to the rental property can be claimed. The interest relating to the private expense must be excluded.

Capital works expenses must be claimed over a number of years. Capital works include any structural improvements such as replacing a roof or a kitchen renovation.

Any depreciating assets costing more than $300, must be claimed over their effective life. Depreciating assets can include any household appliances such as a new dishwasher, oven or fridge.

Expenses can only be claimed whilst the property is either producing income or genuinely available for rent. This means expenses cannot be claimed if friends and family stay at the property and pay “mates rates,” you use the property yourself, or the property is advertised as available for rent but you have conditions such as a significantly inflating the rent above market value or placing unreasonable restrictions on potential tenants.

Sale of a Rental Property

Selling a rental property will cause a Capital Gains Tax (CGT) event to occur. The CGT event occurs on the date the taxpayer entered into the contract to sell the property – not the settlement date, which is important where a contract is signed before 30 June.

The difference between the sale proceeds and the cost base of the property will determine if a capital gain or capital loss has been made. The cost base includes the cost of the property when it was purchased, stamp duty paid, legal fees, valuations and real estate fees. Any capital works claimed as deductions may need to be subtracted from the cost base.

CGT exemptions or discounts may apply if the property was your main residence for a period of time, if the property was purchased prior to 20 September 1985, or if the property was held for longer than 12 months.

Keeping Good Records

It is extremely important to maintain good records for all sources of rental income and expenses incurred. These records must be kept for the longer of 5 years from the date of tax return lodgement or 5 years from the disposal of the property, whichever is longer.

Records should include prices, dates, and the nature of the goods or services, as well as demonstrating how the expense was incurred for the property and how it relates to producing rental income.

Learn more

Should you have any questions regarding rental income or deductions, please contact Kristy Baxter or Angela Stavropoulos from Pilot’s medical services division on or (07) 3023 1300.