Nine out of 10 landlords are getting their income tax returns wrong, and the ATO is watching

Dodgy landlords making inflated claims for repairs and maintenance on their rental properties are firmly in the Australian Tax Office’s sights.

Assistant commissioner Rob Thomson said ATO analysis found nine out of 10 landlords were getting their income tax returns wrong.

Not all home maintenance and repair work can be deducted at tax time for landlords.Credit: Kate Geraghty

“We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we’re keeping a close eye on this,” he said.

“This year, we’re particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit.”

New CoreLogic figures show median weekly rents reached a national high in April of $627 a week and annual rent growth accelerated in the first few months of 2024.

National annual rent growth rose from 8.1 per cent in October last year, to 8.5 per cent in April. All capital cities bar Hobart experienced annual rent growth, with Perth leading the pack at 13.6 per cent, followed by Melbourne (up 9.6 per cent), Adelaide (up 9.1 per cent) and Sydney (up 9 per cent).

CoreLogic’s head of residential research for Australia, Eliza Owen, said even in areas where rents had been falling, prices were levelling out or turning around again as net overseas migration put pressure on the rental market.

“Given there is little that can be done on the supply side for renters in the short term, reprieve in the rental market is most likely to come from a moderation in net overseas migration,” she said.

“Until then, renters may be seeking more shared accommodation or exploring cheaper rental markets across the outer-metro fringes or regional Australia.”

Nearly half of Australia’s 2.2 million rental property owners are negatively geared, which means expenses related to their rental property are greater than the income they earn from it.

Landlords can claim immediate deductions for general repairs and maintenance on a rental property. But Thomson said they could not do so for capital expenses such as improvements made during possession of the property or on a new purchase.

“You can claim an immediate deduction for general repairs like replacing damaged carpet or a broken window,” he said.

“But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works.”

Thomson said rental property owners should carefully examine their records and consider using an accountant to help prepare accurate tax returns.

“We encourage rental property owners to carefully review their records before lodging their return and take care to ensure they are claiming deductions correctly,” he said.

“Ensuring you provide full and complete records to your registered tax agent allows them to prepare your tax return correctly, so you claim everything you’re entitled to and nothing that you’re not.”

The Tax Office also remains focused on working-from-home deductions after revising the fixed-rate method of calculating them last year. The changes meant workers needed comprehensive records to back up their claims, Thomson said.

“Deductions for working-from-home expenses can be calculated using the actual cost or the fixed-rate method, and keeping good records gives you the flexibility to use the method that works for you, and claim the expenses you are entitled to,” he said.

“Copying and pasting your working-from-home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’.”

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