May 2024

Warnings for deductions claimed on rental properties

The Australian Taxation Office (ATO) is cautioning rental property owners about accurately claiming deductions on their tax returns this year, particularly with regard to maintenance claims.

With 9 out of 10 landlords being flagged for incorrect lodgments—whether due to oversight or intent—it’s crucial to ensure you understand what can and cannot be claimed in this year’s return.

Rental expenses are deductible to the extent that they are incurred for the purpose of producing rental income.

Expenses may be deductible for periods when the property is not rented out, providing the property is genuinely available for rent – that is:

  • the property is advertised in ways which give it broad exposure to potential tenants, and
  • having regard to all the circumstances, tenants are reasonably likely to rent it.

For rental properties, examples of deductible expenses that you might be able to pay before 30 June include:

  • Repairs and maintenance
  • Cleaning
  • Gardening
  • Pest control
  • Smoke alarm review and maintenance
  • Servicing costs (e.g., air conditioner, pool)
  • Advertising for tenants
  • Body Corporate fees and charges

You can claim a deduction for these expenses only if you actually incur them and they are not paid by the tenant.

You may be able to pre-pay some expenses for your rental property – however, take care when doing so. Consulting with a tax professional beforehand could provide additional guidance for your situation or ability to do so.

What can’t be claimed?

You are not able to claim deductions for certain expenses, such as those not incurred by you (e.g. water or electricity usage by your tenants), if for example a holiday home was not genuinely available for rent at the time of the expense or if the expense does not relate to the rental of the property (such as private use portions).

You also may not be able to claim a deduction for a decline in value of certain second-hand depreciating assets against your residential rental property income unless you meet certain criteria.

If you aren’t sure about how to treat the deductions you may be claiming against your rental property’s income, what may not be claimable or just need assistance, start a conversation with your trusted tax adviser.

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