Tax guide for owners

The Australian Taxation Office (ATO) has issued a set of guidelines to assist all rental property owners whose income is affected due to recent events in the country, including bush fires, the ongoing COVID-19 floods and pandemic.

The most important thing that homeowners should keep in mind when preparing to file their tax returns is to keep a record of all expenses. Without good records, ATO said landlords will find it difficult to report all of their rental income and determine what expenses they can claim as deductions.

Manage reduced rental income

In addition to the moratorium on evictions, landlords are urged by the state and federal governments to negotiate rental deductions or rent exemptions with their tenants.

The ATO stated that in cases where there was an agreement to reduce rents, the landlords only had to declare the rent they had received as income. This means that they do not need to include deferred payments in their declared income until they receive them.

"Although rental income may be reduced, owners will continue to incur normal expenses on their rental property and will still be able to report it on their tax return as long as the reduced rent charged is determined at arm's length , having regard to current market conditions, "said ATO.

In addition, homeowners can still claim their mortgage interest even if they have deferred the loan. However, all insurance policy payments covering loss of income must be included in their tax returns.

Read also: Post-pandemic guide for homeowners

Affected short-term rentals

For short-term owners, deductions will always be available provided the property remains available for rental.

However, if the owners have used the property for private purposes, they will not be able to claim deductions during the period during which the property was withdrawn from the market.

"To determine the proportion of expenses that can be claimed for short-term rental properties affected by COVID-19 or bushfires, a reasonable approach is to allocate expenses according to the usage model from the previous year, unless you can prove that they were actually available to rent for a longer period in 2020, "said ATO.

Modifications to the deductions for vacant land

ATO also clarified that for this year, expenses related to the possession of vacant land will no longer be deductible for owners who intend to build a rental property that does not Has not yet been built.

However, this does not apply to land that is used in a business. In addition, the expenses are deductible if circumstances such as a fire or a flood have resulted in the vacancy of the land.

"If your rental property was destroyed in the bush fires and you are rebuilding, you can claim the cost of holding your now vacant land for up to three years while you are rebuilding your rental property, "explained ATO.

If the property is not really available for rental, the owners must limit their deductions to the days when the house is listed. Homeowners who allow friends and family to stay at the property at a reduced price should also limit their deductions to the amount of rent received.

"Don't forget to include all your rental income, especially economy sharing platforms. We compare the data received from these providers with the information in the tax returns and we will follow the deviations, "said ATO.

Avoiding common mistakes

ATO also pointed to several common mistakes that rental property owners make when filing their tax returns.

The first mistake was to claim deductions for travel expenses they incur when inspecting their rental properties. ATO stated that landlords can only claim these costs if they are engaged in the rental of rental properties.

Another common mistake was to claim interest on part of a loan that was used for personal transactions such as payment of living expenses, vacation or the purchase of purchases. expensive items. ATO has stated that it uses data and analysis to ensure that interest claims relate only to the part of the loan that relates directly to the rental property.

The tax office also clarified how the capital should be claimed. She indicated that repair or maintenance expenses are deductible immediately, while improvements and renovations are classified as capital work and are deductible over several years.

The owners cannot claim initial repairs for the damage that existed when purchasing the property. ATO classifies them as capital works and should be claimed over a number of years.

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