What are the ATO updates for Rental Property Owners?

The ATO has decided to become more strict on people who own rental properties, since they discovered a potential $1 billion disparity between the amount of money people are reporting and how much rental income is being earned.

The ATO has taken action, requiring that institutions such as banks and financial businesses need to give the ATO the data for residential investment loans for approximately 1.7 million rental property owners. This ranges from the period of 2021-2022 all the way to 2025-2026.

This is the type of information that the ATO is requesting:

  • Personal data such as identification, address, date of birth.
  • Details of your bank accounts.
  • Specific transaction details such as amount and date.
  • All of the details of your rental property.

A data matching program will be implemented, to help identify those landlords who have not been declaring their rental income. This will also specifically target rental property loan interest and borrowing expense deductions and the way they are being reported on the landlord’s tax returns. Additionally, the ATO will be checking to see whether there were any net capital gains declared on properties specifically used to create rental income.

The ATO is not only reaching out to banks and financial institutions for this data, but they are also taking the data from software that is used for property management. Due to the advances in technology, a majority of rental information is now stored online and in cloud-based systems. The ATO is requesting that these online providers hand over access to the data including all bank details, expenses and income, as well as information about the rental properties and real estate agents. The date range for this to be implemented is from 2018-2019 and 2022-2023.

Some of the main areas of interest triggering this update include:

Claiming interest and redrawing on the loan

Most of the time the investment property loan interest is tax deductible. But it is no longer deductible when you have redrawn the investment property loan for personal use. This results in those particular expenses needing to be separated into multiple sections, i.e non-deductible and deductible, as well as on-going repayments.

Borrowing costs

Costs that are incurred from borrowing money can also be claimed as deductions. These include mortgage fees, valuation fees, insurance for the mortgage, registration, and filing. One exception on these tax deductions is life insurance, regardless of whether it was purchased for the purpose of financing a loan. There is an opportunity for the entire amount of the interest and expenses to be deductible, only if the loan is paid earlier than the due date or re-financed.

Repairs or Maintenance

This is one section of deductions that the ATO scrutinises carefully, which means that you need to be extra cautious when reporting, to ensure that you are providing the correct information. There is often a misconception when it comes to the difference between capital works, maintenance, and repairs. Maintenance and repairs are available to claim immediately, whereas with capital works there is a delay and is sometimes divided over multiples years.

What is the difference between Maintenance and Repairs?

The ATO defines a repair as fixing something on the property that has experienced wear as a result of you having rental tenants. One example would be a door handle that needs to be replaced from use over time, or a toilet that is no longer working properly. Something that would not qualify as a repair would be a significant improvement such as replacing kitchen appliances, as this comes under ‘replacement of an asset’. Another thing to keep in mind is that any existing problems that had already been acknowledged at the time of purchase, do not fall into the category of tax deductible.

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