Landlords - ATO Scrutiny on Property Deductions You Need to Be Aware Of

Worldwide Advisory
1 day ago
3 min read

As the end of financial year approaches, landlords across Australia—and especially Aussie expats owning investment properties—should be taking a closer look at their tax claims. The Australian Taxation Office (ATO) has ramped up audits in recent years, with rental property deductions under the microscope.

At World Wide Advisory, we support landlords and offshore investors by helping them navigate complex ATO requirements and avoid common traps. Whether you’re living overseas or entering the Australian property market from abroad, compliance and accurate recordkeeping are critical to protect your returns.

What Property Deductions Can You Claim?

Legitimate deductions can significantly reduce your taxable rental income. Here are the most common ones:

✅ Interest on Investment Loans

You can claim the interest (but not the principal) on loans used to purchase or improve your rental property.

Key Rule: The loan must be used exclusively for income-producing purposes.

✅ Repairs and Maintenance

Immediate deductions are allowed for repairs related to wear and tear from tenants (e.g., fixing a leaking tap).

Warning: Improvements or renovations are capital in nature and must be depreciated over time—not claimed in full.

✅ Depreciation and Capital Allowances

Claim depreciation on assets like carpets, appliances, and blinds, plus capital works deductions for structural improvements.

Pro Tip: Use a qualified quantity surveyor to create a depreciation schedule.

✅ Property Management Fees and Insurance

Fees paid to property managers, legal services, advertising for tenants, and landlord insurance premiums are deductible.

✅ Council Rates, Water Charges, and Strata Fees

These ongoing costs are often overlooked but are legitimate deductions while the property is rented or available for rent.

Common Mistakes That Trigger ATO Attention

ATO audits of property claims have uncovered a range of errors, especially among non-resident landlords or those claiming expenses without sufficient backing.

🚫 Claiming for Personal Use Periods

You can only claim expenses for periods when the property was genuinely available for rent. If it’s used by family, friends, or left vacant for personal reasons, you must apportion deductions.

🚫 Overclaiming Loan Interest

If a loan is split or partly used for personal purposes (like buying a car or holiday), only the rental-related portion of interest can be claimed.

🚫 Incorrect Repairs vs Improvements Classification

Many landlords mistakenly deduct capital improvements as repairs. If you're adding value to the property (e.g. replacing an entire kitchen), those expenses must be claimed over time.

🚫 Poor Documentation

Inadequate records—missing receipts, unclear loan use, or lack of depreciation reports—are a major red flag for ATO auditors.

Why It Matters for Expats and Offshore Investors

If you're an Aussie expat or a foreign business owning Australian property, you're still subject to Australian tax rules on rental income. And with rising ATO scrutiny, it's essential to understand:

How non-residency affects deduction eligibility

Foreign income interaction with Australian property income

Land tax implications in various states

Additionally, property deductions must be reported correctly in your annual return—and matched with income declared to the ATO by property managers, banks, and service providers.

Best Practices for ATO-Proof Property Deductions

1. Keep detailed records: Receipts, contracts, loan agreements, and depreciation schedules.

2. Separate accounts: Use a dedicated account for rental income and expenses.

3. Use professional help: Engage a tax consultant who understands expat and cross-border tax rules.

4. Review annually: Update your depreciation schedule and assess loan use annually.

5. Be transparent: Always apportion accurately for mixed-use or vacant periods.

Get Expert Help from World Wide Advisory

Don’t risk your investment returns to compliance errors. At World Wide Advisory, we offer expert tax planning and property deduction guidance for: