As Australia’s income tax system is based on self-assessment, the taxpayer is responsible for lodging tax returns which comply with taxation laws. You must show all your assessable income and that you claim only the deductions to which you are entitled. One of the two main targets of the ATO in this tax period will be rental property deductions, especially for holiday homes.

Rental Property Deductions:

  • Holiday homes

The deductions may be reduced for holiday homes where the home is rented out to family and friends at less than market value. Expenses incurred in respect of a rental property are deductible for the period only when it is rented out or available for rent. This means that the ATO will disallow the claim if there are no genuine attempts to rent the holiday home.

  • Apportionment of rental income and deductions between partners

If a husband and wife jointly own a rental property, each must include half of the income and expenses in their tax returns. Any agreement that the couple might draw up to divide the income and expenses in proportions other than equal shares has no effect for income tax purposes.

  • Claiming interest deduction for private portion of loans

If you take out a loan to purchase a rental property, you can claim the interest charged on that loan, or a portion of the interest, as a deduction. If a loan is obtained to purchase both a rental property and, for example, a private car, the interest on the loan must be apportioned into deductible and non-deductible parts.

  • Repairs and Maintenance

Expenditure for repairs you make to the property is generally deductible. It must relate directly to wear and tear or other damage that occurred as a result of you renting out the property. However, initial repairs for example, in remedying defects, damage or deterioration that existed at the date you acquired the property are of a capital nature and are not deductible.

Our tax accountants at The Quinn Group can assist you to avoid making mistakes. Contact us on (02) 9223 9166 or submit an online enquiry.