ATO focus on rental property deductions and holiday homes

The ATO has announced that it is increasing its focus on rental property deductions and is encouraging all rental owners to double-check their claims before lodging their tax return.

The ATO is paying particular attention to excessive deductions claimed for rental properties, especially those located in popular holiday destinations around Australia. It has reminded taxpayers to only claim the deductions they are entitled to, for the periods the holiday home is rented out or is genuinely available for rent.

The ATO has identified a number of instances where taxpayers are claiming rental deductions for holiday homes that appear to be higher than expected when compared to the rental income being reported.

As part of the ATO’s prevention before correction approach, they are sending letters to taxpayers in approximately 500 postcodes across Australia, reminding them to only claim the deductions they are entitled to, for the periods the holiday home is rented out or is genuinely available for rent.

There are a few simple rules rental property owners should follow to avoid making mistakes on their tax return.

Firstly, it is important for all property owners to keep accurate records. This helps to ensure they declare the right amount of rental income and they have evidence for claims made.

Secondly, rental property owners should only claim deductions for the periods the property is rented out or is genuinely available for rent. If a property is rented at below market rates, for example to family or friends, deduction claims must be limited to the income earned while rented.

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