Many residential rental property owners have had their rental income affected by COVID-19. As a result of this income year not being business as usual, the ATO has provided answers to some typical scenarios that may crop up in this area for tax time.
Q: If tenants are not paying their full rent of have temporarily stopped paying rent as their income has been affected due to COVID-19, can a property owner still claim deductions on their rental property expenses?
Yes. If tenants are not meeting their payment obligations under the lease agreement due to COVID19 and you continue to incur normal expenses on your property, then you will still be able to claim these expenses in your tax return.
Q: A property owner is considering reducing the rent for tenants whose income has been adversely affected by COVID-19 to enable these tenants to stay in the property (they are not in default of their rent). Will the owner’s deduction for rental property expenses be reduced because of this?
No. If they decide to reduce the rent to enable tenants to remain in the property (thereby maximising rental return in a changed rental market), their deduction for rental property expenses will not be reduced.
Q: If an owner receives a back payment of rent or an amount of insurance for lost rent, is this assessable income to the property owner?
Yes. These amounts should be declared as income in the tax year in which you receive the amounts.
Q: If the bank defers loan repayments for a period due to COVID-19, can a property owner continue to claim interest on the loan as a deduction?
Yes. If interest continues to accumulate on your loan, it will be an expense that you have incurred and is therefore deductible. Interest remains deductible on the loan even if the bank defers the repayments.
Q: Is a rental property owner able to access the new increased instant asset write off for their property?
No. If you are a property investor, you cannot access the instant asset write-off deduction.