ATO issues warning for landlords doing their tax returns wrong

A firm warning has been issued to landlords after a review revealed nine in 10 rental property owners have been doing their tax returns wrong.

Rental income was being left out of returns and mistakes were being made with property deductions, including overclaiming expenses or claiming for improvements to private properties, the Australian Taxation Office (ATO) review found.

"Landlords and their registered tax agents need to take extra care when lodging this year," ATO assistant commissioner Tim Loh said.

READ MORE: Housing affordability hits worst level in three decades, report warns

"When you are overclaiming expenses or claiming for improvements to private properties, you are taking money from the Australian community. 

"Money that could have been otherwise used to further increase funding for things like women's sports, schools and hospitals."

Loh said landlords should take care when preparing their tax returns to make sure all rental income is declared, including short-term rental arrangements, when part of a home is rented, and other rental-related income like insurance payouts and rental bond money retained.

READ MORE: Two teens killed while celebrating Father's Day on Melbourne farm

"Income and deductions must be in line with a rental property owner's ownership interest, which should generally mirror the legal documents," Loh said.

The ATO said rental income must be reported in the year the tenant paid and not when the landlord's agent transferred it to them.

The income must also be reported as the gross amount received before property manager fees and other expenses the property owner pays on the landlord's behalf are taken out.

"Make sure you are declaring your gross income," Loh said.

"We have seen some clients declaring their net rental income after the property manager has paid their expenses and then they have claimed deductions like rates and repairs all over again."