ATO consultation on proposed Rental PAG
The Tax Institute welcomes the opportunity to make a submission to the Australian Taxation Office (ATO) in relation to the consultation on draft public advice and guidance (draft PAG) on rental property arrangements, comprising:
- Draft TR 2025/D1 Income tax: rental property income and deductions for individuals who are not in business (draft TR);
- PCG 2025/D6 Apportionment of rental property deductions – ATO compliance approach (draft PCG1); and
- PCG 2025/D7 Application of section 26-50 of the Income Tax Assessment Act 1997 to holiday homes that you also rent out – ATO compliance approach (draft PCG2).
The Tax Institute broadly supports the publication of the draft PAG. They are a useful clarification of the Commissioner’s interpretation of the relevant law, in particular how section 26-50 of the Income Tax Assessment Act 1997 (ITAA 1997) may apply to holiday homes that are also rented out, and what risk assessment framework the ATO proposes to use to allocate compliance resources in this area.
However, we consider that the proposed guidance can be improved and expanded in a number of areas. Our key concerns regarding the draft PAG are outlined below.
- The highly technical nature of the draft PAG may be considered confusing or difficult to follow, and would benefit from the inclusion of visual representations or clearer explanations of the application of the law to assist taxpayers in complying with their obligations.
- The draft PAG contains some terms, explanations and examples that we consider may be confusing or misleading to taxpayers, and which could be replaced with more appropriate descriptors.
- Some relevant and common scenarios or circumstances are not covered in the draft PAG and should be included to address any confusion, and close these gaps. This would also improve readability of the draft PAG and understanding of the law.
The capital gains tax (CGT) implications that may arise when renting out a property are broadly mentioned in the draft PAG, however, a more detailed explanation of the CGT implications is warranted. In particular, the draft PAG should address the CGT implications of renting out part or all of a main residence, and clarify the CGT treatment of non-deductible expenses concerning holiday homes and rental properties.
Our detailed response and recommendations to further improve the draft PAG are contained in Appendix A.