RSM Australia

Rental properties: An ATO hotspot

Agribusinses Insights

Rental properties are a great investment to help build off farm assets, which can be used later in life as part of a great succession plan. In the meantime, you can enjoy earning a bit of off farm income and perhaps claiming a few deductions along the way, but it’s important to know what you can claim and how much you can claim.

rental propertiesThe ATO is shining a spotlight on the rental properties as there have been a few people try and take advantage of property market fluctuations. We have listed the top points the ATO is focussing on.

The income side of a rental property probably sounds like the easy part, but there a few little traps that do catch people out. Any amounts received from the tenant as rent is included, but also any reimbursement from the tenant to cover costs incurred that are deductible to you as the landlord, examples of these are water usage and repairs for damage. These must be included in income and then the matching expense claimed as a deduction.

There are three types of expenses that can be incurred with a rental property: non-deductible expenses, immediately deductible expenses, and expenses that get claimed over a number of years.

Non-deductible expenses

  • Acquisition and disposal costsrental properties
  • Expenses associated with periods where the property was not genuinely available for rent. This is a very important one for any holiday homes that you rent out for parts of the year and utilise for other times of the year yourself. If you only try to rent it out for 40 weeks of the year then you can only claim 40/52 of the expenses, you must apportion your private percentage
  • Travel costs to inspect your property
  • Expenses relating to vacant land

Immediately deductible expenses

  • Council rates
  • Water rates
  • Interest on loans used to acquire the property or maintain the property. The funds must be used in connection with the property. If you withdraw funds to go on holiday, then the loan must get apportioned for private use
  • Home and landlord insurance
  • Repairs and maintenance
  • Legal costs
  • Property agent fees
  • There are many more as well, please check with your accountant

Deductions claimed over a number of years

  • Borrowing expenses
  • Decline in value of depreciating assets, this is limited to new assets only. There is no deduction for second-hand items used in a rental property
  • Capital works deductions

HOW CAN RSM HELP?

The area of rental properties is as complex an area as any in tax legislation, so before going ahead it would be best to give your accountant a call to check the rules. Contact your local RSM office to book an appointment