ATO, Compliance & Regulation, Property

Rental property expenses in focus

NALI Deductions ATO Rental property

The ATO is currently focusing on deductible expenses associated with investment properties with regard to its compliance enforcement procedures.

Deductible expenses relating to a rental property is a compliance area on which the ATO is currently placing intense focus with resulting implications for SMSF trustees, an education provider has said.

“It’s probably worth noting that rental property transactions are hot on the ATO’s radar [at the moment]. The tax office and Treasury, each year, [prepare] a list of tax concessions that cost the government the most and second on that list is rental property deductions,” Accurium head of tax education Lee-Ann Hayes noted.

“I guess [it] is probably typically looking at [the issue] in the context of an individual where there may be some questions [as to] whether they’re using property themselves personally, but that doesn’t stop the tax office from being interested in rental property deductions across the board.

“And property, as we know, is absolutely one of those top investments for self-managed super funds.”

With regard to rental income from an SMSF-owned property, Hayes highlighted the care required when accepting prepaid rent to ensure the fund does not trigger any other compliance issues.

“It might be paid [in advance] for the next month or it might be for the next year. [But] I guess the question probably raised will be why would someone be prepaying rent for a rental property sitting in a super fund that far in advance,” she said.

“I would be very careful in this particular situation, of course, because you may inadvertently enact the non-arm’s-length income (NALI) provisions.”

In these circumstances it is imperative for the trustees to determine if the tenant is a related party, she pointed out.

“You just want to be cautious [as to] why [the tenant is] actually paying the rent in advance. If it’s to facilitate some sort of injection of cash [to allow the fund to acquire an asset] it otherwise couldn’t, I think you’d want to be a little bit careful that you haven’t actually breached one of the {NALI] provisions,” she explained.


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