Here’s one that comes up every July. An owner rings their property manager, or more often their accountant rings us, wanting to know why rent that landed in the owner’s account on 4 July is being counted in last year’s tax return. Fair question. The answer is that the Australian Taxation Office (ATO) doesn’t care when the money reached the owner’s bank account. It cares when it reached yours, on the owner’s behalf.
The short version
- The ATO counts rental income in the year the tenant pays your agency, not the year the owner gets paid.
- Rent received into trust in late June but paid out in July belongs to the earlier financial year.
- “Rental income” also covers bond money kept for rent or damage, insurance payouts and a few other things that pass through the trust account.
- Your owner statements need to show when each amount was received in trust, separately from when it went out.
What the ATO actually says
The ATO’s guidance is about as clear as tax guidance gets: “You must declare rental income and related payments in your tax return in the year your tenant pays rent. If your tenant pays rent to your agent or property manager, declare rental income in the year your tenant pays them, not when it’s transferred to you.”
So the taxable moment is when the tenant’s payment comes under your agency’s control. When your trust account pays the owner is beside the point.
The ATO even has a worked example, and it’s a familiar one. Two co-owners rent out a unit through a property manager. The tenant gives notice and asks for the bond to go towards the last month’s rent. The bond is released to the property manager on 30 June, but the balance doesn’t reach the owners’ bank account until 4 July. New financial year, you’d think. Not according to the ATO. It’s income in the earlier year, because that’s when the property manager received it.
It’s more than just the rent
“Rental income” for tax purposes is wider than the weekly rent. Money that passes through the trust account, or stays in it, counts too. The ATO’s list includes:
- bond money kept in place of rent, or kept to cover damage
- letting and booking fees you keep when a booking is cancelled
- insurance payouts, whether for a burst pipe, a storm or loss of rent
- payments from a disaster relief fund
- money a tenant pays towards fixing damage they caused
- government rebates on a depreciating asset bought for the property
- lump sum rent payments
Owners also have to declare the gross rent, before your fees and other expenses come off, and each owner reports their legal share of the property.
Why this lands on the agency, not just the owner
Owners rely on your trust ledger and your end of financial year (EOFY) statements to know what came in on their behalf, and when. Most of them have never looked at the trust account. They see what you send them.
If your ledger doesn’t clearly separate the date money was received in trust from the date it was paid out, you’ve handed the owner’s accountant a guessing game. And you’ve done it in July, when they have the least patience for one.
The risk sits right on the 30 June line. Rent, a bond applied to arrears, an insurance payout that hit trust in the last few days of June and went out in July - all of it belongs to the earlier year. If your EOFY statements are built on payment dates rather than receipt dates, your owners can end up under-reporting income the ATO already counts as theirs. That’s not a conversation you want to be having in October.
Four habits that keep it clean
- Show both dates. Your trust ledger and owner statements should show when each amount was received in trust and, separately, when it was paid out.
- Watch the last week of June. That’s when a receipt and its payment are most likely to fall either side of the cut-off.
- Have the answer ready. The accountant will ask what was received in trust before 30 June, even if it wasn’t paid out until July. Don’t make them wait for it.
- Reconcile promptly at year end. If the trust account reconciliation is current, the numbers are right when the statements go out. If it isn’t, everything above is guesswork.
Our compliance calendar puts the 30 June cut-off alongside every other trust account date for the year, if you’d like the whole picture in one place.
Where that leaves you
The ATO doesn’t care when the money reached the owner. It cares when it reached you. Getting the receipt date right in your trust records is more than tidy bookkeeping. It’s the difference between an owner’s tax return being right first time and their accountant coming back to you with questions you should already be able to answer.
We keep agency trust accounts reconciled and properly dated all year, so EOFY owner reporting holds up when someone looks closely. If you’d like a second set of eyes on how your records handle the 30 June cut-off, get in touch.
Source: Rental income you must declare, Australian Taxation Office. This is general information, not tax advice. Owners should check their own position with a registered tax agent.