iscover ATO warns tax agents not to rely on property manager reports
TaxTax practitioners have been cautioned against relying on reports from property managers when preparing rental property schedules, with the ATO seeing a number of issues arise with claims.
The ATO has advised tax professionals to carefully check property managers' reports to reduce the number of incorrect claims by their clients.
"When preparing rental property schedules, you may be relying on reports provided by property managers. While these reports are a useful starting point, they should be treated as informational as expense classifications may not reflect the correct tax treatment," the Tax Office said.
The ATO said it was coming across a number of common issues with expenses claimed for rental properties.
These include capital expenses, including initial repairs, being claimed as current-year deductions, and expenses being grouped broadly without sufficient detail to determine appropriate tax treatment.
It is also seeing discrepancies in the accounting methods being used in terms of when expenses are actually incurred versus when they are paid. In some cases, private expenses are also being incorrectly included, such as costs relating to owners' personal use of the property.
To reduce the risk of lodging incorrect claims for clients, the ATO has recommended that tax practitioners request invoices or work descriptions if the nature of the expense is unclear and seek additional evidence, including photos, if invoice descriptions don't align with the nature or extent of the work performed.
It has also recommended that tax practitioners confirm that the address on invoices and supporting documentation relates to the rental property, and not their client’s private residence or another property.
"We [also] recommend you ensure capital works, depreciating assets, and repairs are correctly identified and treated, and explain to your clients why tax outcomes may differ from property manager summaries," the ATO said.
The Tax Office said this review process is particularly important where significant expenditure has occurred, or a property has been recently purchased.
"It helps ensure rental returns are accurately prepared, improves client understanding, and reduces the risk of audit or review arising from incorrect or overstated deductions," the ATO said.
The ATO also recently reminded rental property owners and tax practitioners about its taxation ruling, TR 2026/1, which provides guidance for individuals that earn income from the short-term rental market.
The taxation ruling sets out the ATO's views on when amounts received for the use of a rental property will be considered assessable income, when losses or outgoings relating to the rental property can be claimed and how to apportion your deductions when there are both income-producing and non-income-producing uses of your rental property.
TR 2026/1 also outlines when certain deductions for a rental property, which is also used as a holiday home, will be denied, as the property is a ‘leisure facility’ that is not used or held mainly to earn assessable rental income.
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Miranda Brownlee
Miranda Brownlee is the editor of Accountants Daily and Accounting Times, the leading sources of news, insight, and educational content for professionals in the accounting sector.
Miranda has over a decade of experience reporting on the financial services and accounting sectors, working on a range of publications including SMSF Adviser, Investor Daily and ifa.