In that context, the ATO has set out reminders on some of the key issues for rental property owners.

First, the ATO notes that all rental income should be included in the return. This includes income from short-term rental arrangements, renting part of a home and other rental related income like insurance payouts and rental bond money retained. 

When reviewing rental property expenses, the ATO is reminding practitioners and taxpayers that not all expenses are necessarily treated in the same way for tax purposes. There will be cases where expenses are deductible up-front, while other types of expenditure might only be claimed as deductions over time. 

In some cases, expenditure may not be deductible at all. A good example of this is when it comes to depreciation deductions for certain second-hand depreciating assets used in residential rental properties.

The ATO has issued warnings around correctly making the distinction between repairs and maintenance versus improvements. While genuine repairs and maintenance on a rental property can often be claimed as a deduction immediately, deductions for capital works are claimed over time. 

To be considered a repair, the work must relate directly to the wear and tear resulting from the property being rented out. This means repairs and maintenance to fix issues that existed at the time of purchasing the property are not immediately deductible. Also, where an entire structure is being replaced or where the works are considered improvements, this should not normally be considered a repair.

With the ATO recently stepping up its focus by commencing a data matching program on residential investment property loans, interest expenses will be a particular focus area for the ATO. The ATO is concerned that some taxpayers are not correctly apportioning interest deductions for loans where part of the loan is used or the loan was re-financed for a private purpose. 

The ATO has also provided a reminder that there will be other situations where rental expenses may not be available in full. For example, when a holiday home is used both by the owner personally and as a rental property, there is a need to apportion deductions for rental expenses. Also, if a rental property is being rented to relatives at less than market rate, then the ATO will generally only allow deductions for rental property expenses up to the amount of the assessable rental income.