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Rental property owners' obligations and claims

Sunday 7 August 2016

The ATO encourages rental property owners to better understand their obligations and get their claims right.

Assistant Commissioner Graham Whyte has said the ATO will pay close attention to excessive interest expense claims and incorrect apportionment of rental income and expenses between owners.

“We are also looking at holiday homes that are not genuinely available for rent and incorrect claims for newly purchased rental properties”, Mr Whyte said.

The ATO provides the following case studies.

Interest claims

Rental property owner Sarah reported high rental interest claims and was required to provide bank statements as evidence to the ATO. The statements showed borrowings well in excess of the purchase price of the rental property. The interest charges relating to the private part of the loan were disallowed. Sarah was required to pay more than $15,000 back to the ATO.

Holiday home

John has a newly purchased rental property that had not returned any rental income. He told the ATO that the property was occasionally advertised on community noticeboards and websites. John was unable to prove there was a genuine arrangement in which he actively sought tenants or had taken sufficient steps to genuinely advertise the property for rent. A claimed rental loss of almost $60,000 was disallowed and penalties were applied.

Newly purchased rental property

Nancy recently purchased a rental property and had her tax return amended by the ATO to remove deductions for repairs, capital works and incorrectly apportioned borrowing expenses. Nancy had inappropriately claimed a deduction for repairs to defects present in a newly purchased property and the capital works and borrowing expenses should have been spread over several years. Nancy also provided false fee receipts for property management undertaken by a family member. Nancy was required to pay more than $57,000 back to the ATO as well as over $10,000 in penalties for making a false statement in her tax return.

Apportioning expenses between joint owners

A rental property claim was investigated by the ATO where the rental expenses had not been apportioned correctly. The property was jointly owned by a couple but the higher-income earner claimed the larger proportion of the expenses. The expenses were adjusted to reflect the ownership interest and the higher earner had to pay back more than $8,000 in tax.


Ethan was required to provide evidence to the ATO to show that his property was genuinely rented at market rates. Ethan was unable to provide any documentation to show that a rental arrangement was in place. All rental income and expenses were removed from his tax return and he received a tax bill of more than $12,000.