Rental Property Guide – Understanding Rental Income on your tax return

by Envy Accounts | Sep 18, 2025 | Blog, Rental Property

Rental Property Income: UNDERSTANDING wHAT Taxable Rental IS Income on Your Tax Return

Are you interested in increasing your wealth and want to understand the ins-and-outs of rental property investing?

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Whether you have an investment property, looking to buy one or even thinking of buying one we’ve put together a guide so that you can maximise your wealth. We want you to maximise the dollar return on your investment by reducing the tax paid.

Today’s session is all about understanding the income side of rental property ownership.

What is considered rental income.
What is not reportable on your income tax return.

Income received from rental properties is taxable.

If you are the legal owner of a property and receive income from renting it, you are generally required to include that income in your tax return. It doesn’t matter if the property is located here or overseas, if your name is on the purchase contract the income is assessable and goes into your Australian tax return.

There is a type of rental income that is not taxable.

The only time rental income is not declared in your tax return is when it’s domestic in nature.

The obvious one is you live in your property and therefore can’t report on your tax return that you’ve paid “rent” in order to then report rates, water, insurance and so forth as a deduction.

Another one is renting the property in the form of ‘board and lodgings’ to a family member or friend. For example, your adult child is now working, and they pay you to live there with you and eat food you have bought. Another example is your elderly parent has moved into the granny flat out the back and to cover the costs they pay you ‘board and lodgings’. Your intention is that you aren’t there to make money off them and no commercial lease agreement is in place.

It is important to note here that the ATO doesn’t see this as reportable income in your tax return. And therefore, as there is no reportable income you cannot claim any deductions for that property in your tax return.

Receiving rental income from family friends can still be reportable income.

There is a point where you rent to family and friends and that income is required to be declared as income in your tax return. It is a difficult scenario to provide clear guidance on and is determined on a case-by-case basis. But in general, if there is a commercial lease agreement and your goal was to earn income, then you are likely to fall into the bucket of having to declare the income in your tax return. Be warry though, you may want to give ‘mates rates’ to your friends and family to rent your property. This is generally a rental rate less than commercial rental rates in your area. In this circumstance the ATO may disallow deduction beyond that of the rent received.

Purchasing a property in a Family trust, only to live in it yourself.

If you purchase a property in a family trust and rent the property to a third party person the rent received is reported in the family trust tax return, and costs associated with renting the property are deductible on that income.

However, if you as a beneficiary of that family trust move live in that property don’t bother paying rent and declaring it in the family trust. In this scenario the ATO won’t allow you to declare the rental income you pay to the trust as income and therefore won’t allow the trust to apply expenses against this income.

Commercial properties effect on income.

Commercial properties are designed for shops, offices and warehouses, as opposed to living in.

You are legally bound to pay 1/11^th of the income received on commercial rental incomes for annual amounts of $75,000 or more. If you are required to register you can also claim a reduction in GST payable on the expenses.

You’re doing great and start buying more properties to rent, but…

But watch out. You could be classified as a business and also need to register for GST if you earn over the above-mentioned threshold. It’s not all bad news. As you then may be eligible for small business concessions. There’s a lot to it when running a business. So a whole new topic.

So when does the ATO say your rental income is a ‘business’?

It’s a little tricky to pin-point exactly what makes you a ‘business’ in the ATO eyes. And there is no set number of rental properties one must own before the ATO put’s you in the ‘running a business’ bucket.

ATO applies indicators to determine if you are operating a business. They are:

Your activities are ongoing and consistent
You have business plans, records to manage the rental income and expenses
There is repetition in what you do over all properties held. For example you grow equity to buy more properties or you renovate to sell or increase rent or divide the property to increase the rent and value.
Is it a long-term activity and/or have a large quantity of properties, and receive significant income
You’re in it to make a profit as rent far outways expenses or your goal is receiving a gain at the sale of property (as opposed to mearly realising the gain due to factors outside your control). An example is that your investing the rent into the property to renovate, subdivide or other means to increase the value of the property.
Your heavily involved in the property and interviewing tenants, property maintenance, regular inspections, collecting money and financial management
The income produced is your main or a main source of income, rather than a “job”

Apportioning income when there are multiple owners

If you are not seen as running a business the income recorded on your tax return must be apportioned per your legal ownership of the property being rented. You can own property as joint tenants or tenants in common in Australian, and these are written on the purchase contract of the property.

Joint tenants mean you own the property in equal portions of the other owners of the property. For example, you own the property with your spouse as joint tenants. In which case your spouse declares 50% of the income in their return and the remaining in your tax return.
Tenants in common means that the owners of the property own specific portions of the property listed on the purchase contract. For example you may own 20% and another party owns 80%. In this case you declare 20% of the income received.

Whatever the portion of income you declare on your tax return, you must declare the same portion of deductions as that applied to the income.

Deductions for loans

If there are multiple owners of the property and you take out a loan in one of the owners only (or not all of them), those owners with the loan liability can declare the full interest and loan fees against the loan. This scenario doesn’t require apportioning deductions in the same rate per the purchase contract. Loan’s of this nature are more seen in tenant in common purchase contracts.

A point on capital gains

Although this is not the topic of discussion it is still worth noting quickly about the impact of earning a rental income from your property.

Your private home is not subject to capital gains
If at any point of time you rent your property out it is subject to capital gains for the period it is rented.
There is an exemption that allows you to claim your home as a primary residence even though it is being rented out. Check out more on this topic.
You can own rental properties personal, via a trust, partnership, superfund or company. Selling property under each type of structure has difference capital gain effects. Check out more on this topic.
If you rent out a portion of your home, for example a bedroom or granny flat, and the income is required to be reported in your tax return then for the period that portion of the home is subject to capital gains tax when you sell it.
You’re considering or are renting a portion of your property to your personal business in order to receive a reduction in tax for that business. Perhaps think twice. You will have to declare that income in your personal tax return, and when you sell the property that portion of your property is subject to capital gains tax.

Rent can be received in many forms.

Here are some:

Rent of a holiday home (not by you)
Rental of a spare room for short term bed & breakfast or a long-term arrangement
Rental of the granny flat out the back
Rental of the full property for short term AirBNB or a long long-term arrangement
Domestic rental properties designed for living in
Commercial rental properties designed for offices, shops and warehouses
Rented where you personally manage the leasing arrangements or you use a real estate or other agent
Rent at normal ‘going rate’ or reduced ‘mates rates’

Final note on what is reportable rental income in your tax return.

We have gone on about different types of rental income. But what is the amount that we have to report to the ATO in our tax return?

Rental income includes the following:

Rent for the entire or portion of property
Payment for reimbursement of rates and utilities from that ‘tenant’
Rental bond kept for payment for damages or rental loss
Letting or booking fee received
Insurance payout for damages or lost rent (if you receive cash from the insurance company for you to repair the damages then those repairs are deductible against this insurance claim)
Receipt of goods instead of cash for rental. In which case you will need to determine the market value of those goods and record that amount is as rental income in your tax return
Government rebates relating to the rental property, for example solar panel rebates.

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Rental income is a large topic. Be sure to check out rental expenses article.

Coming Soon!

Optimal Number of Business Bank Accounts to Increase Profits and Wealth

by Envy Accounts | Sep 15, 2025 | Blog, Business

HOW MANY BANK ACCOUNTS SHOULD MY BUSINESS HAVE? To manage debt and increase business profits and wealth

Increasing wealth can be assisted by the number of bank accounts your business has to manage their cash flow.

So, how many should you have?

All businesses are different and have different requirements.

For simplicity less is more. There are many reasons to NOT have multiple bank accounts:

bank fees
bookkeeping
Time
Multiple credit card accounts

Bank Fees

Some banks charge monthly fees. So having multiple accounts can add up in extra expenses, reducing the profit of your business. To overcome this shop around. There are many banks and credit unions out there wanting your business. There is likely one that suits your needs and doesn’t charge a fee for that service.

Bookkeepers

But bank fees are not the only issue. Bookkeepers typically charge per hour. A bookkeeper will ensure every transaction in your bank account is assigned to an account on profit and loss statement and balance sheet. Having multiple bank accounts adds time and therefore extra charges by the bookkeeper.

Time Consuming

If you are cutting costs, and taking onboard the reconciling of those bank accounts to the correct account, instead of the bookkeeper. Those extra bank accounts will take extra time away from you. Time you could be using on making money for your business or having tools-down time with your friends, family or just simple time out for yourself.

There are reasons that additional bank accounts out way the cost of the bank fees, the bookkeeper or the ‘time’.

Credit Cards

For each trading account it is beneficial to have only one linked credit card account. This will save you costs associated with the fees (usually an annual fee), bookkeeping hours and time.

You can have multiple credit cards for that one credit card account. Which is useful if you want to track a particular employee spending habits.

But there are reasons to HAVE multiple bank accounts:

Multiple business locations
Saving accounts
Payroll
GST
Income Tax
Profit Reserve
Cash Reserve

Multiple Outlets

It can be useful to track different business ‘outlet’ locations.

If you are a business with several outlet locations, it is useful to track the spending in each location by having a trading account and associated card for each location.

Accounting software does could track these locations via applying different tracking locations to each transaction. However, when the person reconciling the bank account does not have the receipt, invoice, or insider knowledge of which ‘outlet’ the transaction relates, reconciling a sole ‘trading account’ to the correct ‘outlet’ is fraught with problems. So, the profitability of the outlet can be difficult to ascertain without having a trading bank account for each outlet.

Saving Account

It is good practice to have a saving account for multiple reasons. Debt management, material costs, cash reserve, and profit reserve. You could potentially have a ‘savings account’ for each type of reason. But again, you need to outway the cost associated with having multiple accounts. Those costs being bank fees, bookkeeping fees and time.

ATO Debt Management

ATO is one of the largest costs associated with a business. It includes GST, income tax, fringe benefit tax and payroll withholding. An excellent procedure for managing this cost to the business is to move any funds to cover the cost immediately from the ‘trading account’ to the ‘savings account’ as soon as possible.

Payroll Withholding or PAYGW

An example of this is payroll. As soon as payroll is done each period, you pay your employee the net wage. Part of the payroll also includes tax withholding and superannuation. You could potentially transfer the superannuation to the super clearing house and transfer the tax withholding to the ATO at the same time you make payment of the net wage to your employee. Or alternatively you could transfer the tax withholding and superannuation to the ‘savings account’ until such time the cost is due for payment.

GST

Another example is GST. This is always 10% of your turnover that is due to the ATO less GST on expenses. If you don’t know what the GST on the expenses is going to be it is good practice that when you receive money for payment of your product or service that you transfer 1/11^th of the funds directly to the ‘savings account’. This ensures that you more than have enough to cover the GST on the BAS. And it’s good practice to keep your spending lower.

If funds are not sitting in the trading account, you will soon adapt and only spend what is there.

Income Tax

So, what about the tax on the business profits. This is something that your accountant can let you know. One way the accountant can assist you with this is by providing you with an estimate of the proportion of turnover to move to the ‘saving account’. Again, transferring the amount as soon as the payment for your product or services is received into the bank account.

Sometimes you may find that you have not transferred a large enough portion of the cash from the sale from the ‘trading account’ to the ‘sales account’. In this instance you will need to increase the proportion of sales to this account.

Profit Reserve

You may find that in relation to the GST and Income Tax that you have moved to much to the ‘savings account’. Great. It’s now time to give yourself a bonus! Or spend the money on a new asset for the business to generate more income.

Having a profit reserve is great practice if you want grow the business or grow your personal wealth but are not sure you can afford it. So, it could be a tactic that when you receive that cash from a sale that you transfer, say 2%, of that sale to the ‘savings account’. At this stage your not sure your business can afford you taking the money. So this is a stepping stone. You are one, taking the money out of the ‘trading account’ and trying to tighten your spending by not seeing the cash available in that account to spend it. And then waiting. Waiting to see if any hiccups occur that mean you need to add the funds back to the ‘trading account’.

Cash Reserve

This profit reserve is something that you should use initially to attempt to fund a cash reserve.

A ‘cash reserve’ is cash in a ‘savings account’ used specifically for expenses to keep the business running. Expenses such as wages, rent, insurance.

All businesses should have a cash reserve. Or assets liquid enough that you can easily get access to in those rainy-day scenarios. Liquid assets are items that can be converted immediately into cash. There is no waiting for the money while you try to sell something.

Seasonal Income

Typically, businesses experience seasonal income and expenses. They are not constant each month. For example, you may have higher sales during Christmas if you are a retailer or lower over Christmas if you are a builder.

A cash reserve lets you even out cash availability over the seasonal periods, by adding surplus sales to the cash receive during the peaks periods and ciphering off cash from the ‘cash reserve’ during low sale periods.

External Influenced

There may be unforeseen external influences that may cause major reductions in income. Covid is a great example of this.

To cope with unforeseen external influences it is a good principle is three to six months of reserves of what you would typically spend on that business during that period.

What is my recommended minimum number of bank accounts

Three.

The ‘trading account’, the ‘associated credit card account’, the ‘savings accounts’. I do not ever recommend skipping the ‘savings account’. You are in business. So be serious about what you do.

If you are trading under a company, you as a director of that company, are responsible for ensuring the business can pay it’s debts when they are due. So the ‘savings account’ is very important and should not be ignored.

Shop around for that ‘savings account’. Why put lots of hard-earned cash into a low interest account.

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