As the 2020/21 financial year has now ended, landlords will be looking to maximise the tax return on their residential investment property and avoid any pitfalls.
Whether you're a long-time investor, a new landlord or letting out a property on short-term rental platforms such as Airbnb, we sought some advice from the experts.
This included details on some circumstances that are a result of the COVID-19 pandemic, and may affect the tax outcome for residential rental properties.
Matthew Clark, principal of RAMS Home Loans Illawarra said investors needed to ensure they claimed all the deductions they could, including interest.
However, he said some owners may overlook areas such as depreciation, which could be claimed on fixtures and fittings within dwellings.
Mr Clark said the Australian Taxation Office was becoming more focused on claims made in relation to short-term rental accommodation/Airbnb-style properties.
He said these can be more complicated than a long-term rental from a tax perspective, and therefore good record-keeping was essential.
"It can be challenging to bring all your records together, and there can be additional costs that aren't always captured, such as cleaning, damage, repairs, and linen and towels needing replacing," he said.
"An accountant with knowledge of this area would be valuable, because they will have the expertise to look at the sort of expenses that you will incur as you go.
"There's also challenges when people don't Airbnb their property all the time; there can be consequences if it's only a part-time investment property.
"There are caps (on the number of nights a property can be let) in some areas, and if you live in it some of the time and Airbnb it some of the time, you should be able to claim some of your interest and expenses, but possibly not all."
Courtney West, a tax and business advisory partner at KPMG Wollongong said income from short-term rental properties needed to be included in the owner's tax return.
"An individual can only claim a deduction for the portion of expenses that relate to income producing use, that is when it is rented or available for rent - not when they are used privately," she said.
"With COVID-19, short-term rental property use has fluctuated and with lockdowns, owners have been dealing with cancellations and reduced demand.
"The ATO recognises this and even where an owner has made a commercial decision to stop or reduce advertising the property for a period, they may still be able to claim deductions."
Ms West said due to COVID-19, there were some new circumstances that affected the tax outcome for residential rental properties.
*If COVID-19 has reduced your tenants' income, this may affect the income you receive from the rental property.
*If you receive a back payment of rent, you should declare this as income.
*Interest is deductible on your loan if it continues to accumulate because it is an expense you have incurred, even if the bank defers repayments.
*Instant asset write-off concessions do not apply to property investors earning passive rental income.
Ms West said a potential opportunity for a tax deduction that rental property owners should investigate is whether they can claim certain building costs including extensions, alterations and structural improvements as capital works deductions.
"Capital works deductions are claimed over time, rather than in the year incurred," she said.
"If you don't have this information for a property you acquired, you can use the services of a qualified professional to estimate and report on these costs for taxation purposes."