The ATO employs information received from third-party sources to data-match tax returns. Image – Canva.
  • Over 1.8M Australian own rental properties
  • $38B in deductions were claimed in 2019-20 financial year
  • While many taxpayers make genuine errors, ATO has warned it will impose penalties on those who mislead

With tax return season underway, the Australian Tax Office (ATO) has reminded property investors to beware of tax traps that can delay refunds or lead to costly audits.

According to the ATO, in 2019-20, 1.8 million Australians owned rental properties with about $38 billion in deductions claimed.

According to Tim Loh, ATO Assistant Commissioner, the single most common mistake owners of rental and holiday properties make is failing to declare income – including capital gains from selling an investment property.

“To put it simply, you should expect tax consequences for any property that you earn income from that isn’t your main residence,” explained Mr Loh.

Mr Loh added that the ATO is expanding rental income data it receives from various third-party sources such as rental bond authorities, sharing economy platforms and property managers.

“We will contact taxpayers about income they’ve received but haven’t included in their tax return,” he said.

“The ATO often allows taxpayers who have made genuine errors to amend their returns without penalty. But deliberate attempts to avoid tax on rental income will see the ATO take action.”

Tim Loh, Australian Tax Office

“People should remember that there’s no such thing as free real estate when it comes to their tax returns. Our data analytics scrutinise returns for rental deductions that seem unusually high. We will ask questions, and this may lead to a delay in processing your return.”

He added that the ATO has adjusted over 70% of the 2019-20 returns that were selected for review of rental information.

Claims are often knocked back where taxpayers didn’t keep receipts, or when claims were made for personal use or ineligible deductions.

This included interest charges on personal loans. While interest on a loan for a rental property is deductible, if money is redrawn for private use such as buying a boat, interest for that part of the loan cannot be claimed.

The ATO has also reminded investors that the cost of repairs for wear and tear are deductible immediately, but improvement and capital expenses – such as a kitchen renovation – are not deductible immediately, but are over a number of years.

More information is available on the ATO’s website which includes an online tool that can be utilised to make calculations.


Before making any financial decisions, please do your own independent research, taking into account your own situation. This article does not purport to provide financial or taxation advice. See our Terms of Use.

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