In the lead up to the end of financial year, rental property owners are being reminded by the Tax Office to only claim deductions for the periods when their property was rented or genuinely available for rent.

While it is not uncommon to make mistakes when claiming rental deductions, it is necessary for taxpayers with rental property interests to get their deductions and expense claims right to avoid facing harsh and costly penalties.

Rental property owners cannot claim deductions for expenses such as:

• costs they do not pay e.g. water or electricity charges paid by the tenants
• acquisition and disposal costs, including the purchase cost, conveyancing cost, advertising costs and stamp duty
• initial repairs and improvements costs to the property (these can be added instead to the capital cost of the property)

In addition, the ATO is targeting those who claim deductions for periods when the rental property was used for private purposes. Deductions cannot be claimed for the proportion of expenses that relate to private use.

The Tax Office considers private purposes as use by the property owner, their family, relatives or friends that reside free of charge. If your property is rented out to family, relatives or friends at below market rates, your deductions are limited to the amount of rent received during that period.

Expenses will need to be apportioned on a time basis where the property is used for private purposes, for example if:

• the property is available for rent for only part of the year
• only part of the property is used to earn rent
• the property is rented at non-commercial rates

If you’re unsure of what you may be entitled to claim, please contact our office.