The ATO has identified certain claims for tax deductions made by property owners, that are areas of concern when claims can be incorrectly made, and in particular the following big four.
Interest that relates to a rental property that is rented or available for rent is tax deductible. It is irrelevant what security is used for the loan. The ATO is concerned that claims are being made for all of the interest on loans where only part of the loan relates to the rental property or that the loan does not relate to the rental property at all. The question to ask is: Why was the borrowing incurred?. If the answer is: To buy an income producing asset, the interest should be tax deductible. Please note that interest may also be deductible when a property is being renovated with the view to its being rented. Interest may also continue to be deductible after the tenancy has finished.
We are now completing another tax year, it is time once again to think about the preparation of your annual taxation.
The following schedule identifies the types of costs that are typical tax deductions for residential investment property owners:
- Interest on loans to purchase the property, plus interest on loans to undertake repairs, renovations or renovations to investment property. Please note that the ATO has once again flagged interest deductions as an area of interest and therefore the ATO has communicated that interest deductions may be subject to audit.