ATO Tax Tip - Rental Income

Please note that BreakFree Wealth is not a tax accountant and is not licenced to provide tax advice. All information within this blog has been carefully researched, however it does not replace the advice of a licenced tax professional.

Rental Related Income

The Australian Tax Office (ATO) states that rental related income "is the full amount of rent and associated payments that you receive, or become entitled to, when you rent out your property, whether it is paid to you or your agent."

Most property investors are pretty clear on what is meant by rent. However, at times the term 'associated payments' confuses investors. Often these payments are withheld from a property investor's tax return which can become a significant issue in the event of an ATO audit.

Associated payments include:

  • payments in the form of goods and services (you will need to work out the monetary value of these).
  • rental bond money (in the event of tenant damage or default).
  • insurance payouts (particularly in the form of lost rent on a landlord protection policy).
  • letting or booking fees (mainly related to holiday rentals).
  • an amount from a tentant to cover the cost of a repair which was subsequently claimed as a deduction for those repairs.
  • any government rebates for the purchase of a depreciating asset (i.e. solar hot water system).

Co-Ownership of Rental Property

It is important that rental income (and expenses) for tax purposes are divided according to legal interest in the property. There are a number of ownership structures you can elect to buy property in. I refer to these in my book BreakFree Like The 1%.

For simplicity, the following options exist for property investors that choose to own a property in their individual names and are not carrying on a business of letting rental properties:

  • Join Tenants (equal interest in the property)
  • Tenants in Common (unequal interests in the property, i.e. 20%, 30%, 50%)

If you already own property and are not sure what your legal interest is, check the title deed.

Example 1 - Joint Tenants

Source: https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Rental-properties-2022.pdf

Example 2 - Tenants in Common

Source: https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Rental-properties-2022.pdf

Additionally, property investors are uncertain as to whether they are in the business of letting rental properties, particularly as their property portfolio grows in size and number. The ATO provides guidance on this, as the examples below demonstrate.

Example 3 - Not Carrying on a Business of Letting Rental Properties

Source: https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Rental-properties-2022.pdf

Example 4 - In the Business of Letting Rental Properties

Source: https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Rental-properties-2022.pdf

The examples above are key considerations when deciding to purchase properties in one's individual name.

As stated earlier, there are a number of different ownership options (including companies and trusts) that an experienced and competent tax accountant can assist you with. Each option has its own benefits and limitations, therefore it is a decision that should be made on an informed individual basis, under the guidance of a licenced professional.


The ATO's publication Rental Properties 2022 is an excellent publication that every property investor should access and read. You can find it here.


Connect With Us

CONTACT US

0477 318 318
Head Office
Corporate One
Suite 104A, 84 Hotham Street,
Preston VIC 3072

ACT Office

The Realm, Canberra
Level 1, 18 National Circuit,
Barton ACT 2600
Thank You For Subscribing!
SUBSCRIBE
Thank You For Subscribing!
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram