ATO Intensifies Scrutiny on Rental Property Compliance for 2024–25

Introduction: The Australian Taxation Office (ATO) has announced a heightened focus on rental property compliance for the 2024–25 financial year. With data indicating that approximately 90% of rental property owners make errors in their tax returns, the ATO is leveraging advanced data-matching technologies and updated guidelines to ensure accurate reporting and deduction claims. 

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Key ATO Focus Areas:

1. Enhanced Data-Matching Programs: The ATO is expanding its data-matching capabilities by collecting rental bond data from state and territory regulators, covering around 2.2 million individuals between 2023 and 2026. This initiative aims to identify landlords who fail to report rental income or property ownership accurately.

2. Interest Deduction Accuracy: Interest on loans used for rental properties is a significant deduction area. However, the ATO emphasizes that only the portion of interest related to income-producing activities is deductible. For instance, if a loan is used for both personal and investment purposes, the interest must be apportioned accordingly.

3. Depreciation and Capital Works: Landlords can claim deductions for the decline in value of depreciating assets used for income-producing purposes, such as appliances and furniture. However, deductions for second-hand assets are generally not allowed if purchased after 9 May 2017. Additionally, capital works deductions, such as for structural improvements, are typically spread over 25 to 40 years at rates of 2.5% or 4% per year.

4. Proper Apportionment of Expenses: Expenses must be accurately apportioned if the property was:

   • Only rented out for part of the year

   • Used for both personal and rental purposes

   • Rented at non-commercial rates

     Incorrect apportionment can lead to overclaimed deductions and potential penalties.

5. Record-Keeping Requirements: The ATO mandates that landlords maintain thorough records to substantiate all income and expense claims. This includes:

   • Lease agreements

   • Receipts and invoices for expenses

   • Loan documents

   • Evidence of rental income received

     Proper documentation is crucial for accurate tax reporting and in the event of an audit.

Recent Legislative Changes Affecting Property Investors:

• Build-to-Rent Incentives:From 1 January 2025, owners of eligible build-to-rent developments can access tax incentives, including a reduced withholding tax rate and increased capital works deductions. 

• Foreign Resident Capital Gains Withholding:Effective 1 January 2025, the withholding rate on property sales by foreign residents increases from 12.5% to 15%, and the $750,000 threshold is removed, applying the rate to all property sales. 

Common Mistakes to Avoid:

• Claiming deductions for periods when the property was not genuinely available for rent

• Incorrectly classifying capital improvements as immediate repairs

• Failing to apportion loan interest for mixed-purpose loans

• Neglecting to adjust claims for personal use of the property

  
  

Conclusion:

With the ATO's intensified focus on rental property compliance, landlords must ensure accurate reporting and maintain comprehensive records. Staying informed about the latest tax obligations and seeking professional advice can help avoid penalties and ensure compliance.

Need Assistance?

At Lynden Group, we specialize in guiding property investors through the complexities of tax compliance. Our team is equipped to help you navigate the latest ATO requirements and optimize your tax position. Contact us today to schedule a consultation.

Source: https://www.ato.gov.au/forms-and-instructions/rental-properties-2024

This article is based on information available from the Australian Taxation Office as of May 2025. For personalized advice, please consult with our professional team.