Navigating the complexities of tax laws can be daunting, but we’re here to simplify it for you. According to the Income Tax Assessment Act 1997 (ITAA 1997), Section 6-5, rental income is considered ordinary income and must be declared in the year it is received. This means if your property manager collects rent on your behalf, you need to report that income in the same year, even if it hasn’t hit your bank account yet.
TaxTank leverages live bank feeds to capture and categorize your rental income within the correct financial year. While this ensures you have a clear view of the income received for a property, it's important to understand that there can be variances due to the timing of cash flow. Rental income collected by your property manager in a previous or future financial year can cause these discrepancies.
In such cases, TaxTank makes it easy to add an adjusting transaction. This feature not only corrects any discrepancies as per the ATOs requirement, but also provides valuable insights into your cash flow and property performance.
There are two possible scenarios;
If your Annual Rental Statement is less than TaxTank
If your annual rental statement shows a different amount than what is recorded in TaxTank, it typically means rental income from a previous year was received in the current year. For instance, if your rental statement for the 2024 financial year shows a gross rent of $20,814.02, but TaxTank shows $22,763.40, there is a variance of -$1,949.38 that needs to be adjusted.
To rectify this in TaxTank, you can use the 'Funds held by Agent' adjustment category. This category reflects the scenario where rental income was earned in the last period but not paid until the next period.
Here’s how to adjust it:
Navigate to the Property: Go to the relevant property in your TaxTank account.
Select the Income Tab: Click on the 'Income' tab.
Add Adjustment: Click the 'Add' button.
Complete the Fields: In the popup, fill in the fields
Net amount = $0.00
Date = 30.06.2024 (or last day of the relevant financial year)
Category = Rental Income
Description = EOFY Timing Adjustment
Adjustment Category = Funds held by Agent
Adjustment Amount = Variance
For example, if your rental statement shows a variance amount of $1,949.38, the gross income adjustment would be -$1,949.38. This adjustment will balance the gross income in TaxTank with your rental statements, ensuring your records accurately reflect the income received.
If your annual rental statement is more than TaxTank
If your annual rental statement shows more income than what is recorded in TaxTank, it typically means rental income for the current year was received in the next financial year. For example, let’s say your rental statement for the 2024 financial year shows a gross rent of $25,500.90, but TaxTank shows $23,810.05. This results in a variance of $1,690.85 that needs to be adjusted.
To correct this in TaxTank, you can use the 'Rent not paid out (Held by agent)' adjustment category. This category captures the scenario where rental income was earned in the current period but paid in an earlier or later period.
Here’s how to adjust it:
Navigate to the Property: Go to the relevant property in your TaxTank account.
Select the Income Tab: Click on the 'Income' tab.
Add Adjustment: Click the 'Add' button.
Complete the Fields: In the popup, fill in the fields
Net amount = $0.00
Date = 30.06.2024 (or last day of the relevant financial year)
Category = Rental Income
Description = EOFY Timing Adjustment
Adjustment Category = Rent not paid out (Held by agent)
Adjustment Amount = Variance
For example, if your rental statement shows a variance amount of $1,690.85, the gross income adjustment would be $1,690.85. This adjustment will balance the gross income in TaxTank with your rental statements, ensuring your records accurately reflect the income received.
