Investment properties can offer valuable tax benefits, but they are also one of the ATO’s key focus areas. With the ATO continuing to use data matching and review activity to monitor rental property claims, it is important for property owners to make sure their deductions and reporting are correct.

Repairs versus capital works

One common mistake is claiming repairs as an immediate deduction when the work is actually capital in nature. While repairs and maintenance may be deductible straight away, structural improvements or works that improve the property’s value are generally claimed over time as capital works.

Interest deduction errors

Interest deductions are another area where errors often occur. If a loan has been used partly for private purposes and partly for the rental property, the interest must be apportioned. This often becomes an issue where redraws or refinancing have mixed private and investment use.

Private use periods

The ATO also pays close attention to claims made during periods of private use. This is especially relevant for holiday homes and mixed-use properties. To claim deductions, the property must be rented or available for rent on commercial terms.

Record Keeping

Good record keeping is equally important. Owners should keep records of rental income and expenses for at least five years after lodging their return, and longer if the ATO reviews the claim.

Reporting all rental income

It is important not to overlook rental-related income beyond regular rent. This can include retained bond amounts, cancelled booking fees, insurance payouts and, in some cases, disaster relief payments.

Investment properties can deliver worthwhile tax benefits, but they also come with rules that need to be carefully followed. Taking the time to get deductions right, report all rental income and keep proper records can help reduce the risk of ATO review and costly mistakes.