Records required for Negative gearing?

Am looking for some guidance on the types of records that my friend should be keeping for negative gearing my rental property?

Your friend needs to keep comprehensive copies of all receipts and for expenses and income for the past five years. As a matter of course I retain mine for seven years just in case.

My friend currently has a tenant who pays rent in cash monthly in advance. He does not have a formal tenancy agreement and the deal is on a “hand shake”.

1. Does he need to have a formal tenancy agreement ?

No – but a formal agreement will protect you and the tenant from misunderstanding/s. It also clearly spells out the terms and conditions of the rental agreement and can be useful if your tenant does a runner and you want to claim for lost rent.

2. What type of “records” for recording the receipt of the rent will be sufficient for ATO purposes? ie: If he keeps a receipt book and provide the tenant with a receipt each month for the cash received, and keep the “carbon copy” book of receipts – will this be sufficient for his tax return?

Receipt books are fine. Remember the onus is on the taxpayer if the ATO comes knocking.

3. He has not been claiming any dedution thus far (do not ask why!) – can he “back track” for rental income received?

Last four returns. As an aside – it sounds as if your friend is on a one way trip to disaster. Property management and tax are not matters to be taken lightly – he/she needs to adopt a more business like approach.