The Australian Taxation Office (ATO) announced that it would double the number of audits scrutinising rental deductions.
The ATO assistant commissioner said that taxpayers can expect the number of in-depth audits to more than double this year to 4,500, with a specific focus on overclaimed interest, capital works claimed as repairs, incorrect appointment of expenses for holiday homes let out to other and omitted from accommodation sharing. Rental property owners are being warned to ensure their claims are correct this tax time.
When it comes to dodgy claims, the ATO’s detection methods are becoming more advanced.
Key issues the ATO is checking this tax time
Is loan interest being claimed correctly?
If you took out a loan to purchase a rental property, you can claim interest (or a portion of the interest) as a deduction. However, if you use some of the loan money for personal use such as paying for living expenses, buying a boat or going on a holiday, you can’t claim the interest on that part of the loan. You can only claim the part of the interest that relates to the rental property.
Do you know the difference between capital works and repairs?
Repairs or maintenance to restore something that’s broken, damaged or deteriorating are deductible immediately. Improvements or renovations are categorised as capital works and are deductible over a number of years.
Initial repairs for damage that existed when the property was purchased, such as replacing broken light fittings or repairing damaged floor boards, can’t be claimed as an immediate deduction but may be claimed over a number of years as a capital works deduction.
o you have a holiday home?
A holiday home is different to a rental investment property. A holiday home is generally a private asset you use for family holidays, for which you cannot claim expense deductions.
However if you let your property out at ‘mates rates’ (ie below market rates to family and friends) you can claim expenses up to the amount of income you receive. If your property is genuinely available for rent – which means making it available during key holiday periods, keeping it in a condition that people would want to rent it, and not unreasonably refusing tenants – it becomes more like a rental investment property and you can claim deductions for the days it is either rented or is genuinely available.
The number one cause of the ATO disallowing a claim is taxpayers being unable to produce receipts or other documents to support a claim. Furnishing fraudulent or doctored records will attract higher penalties and may also result in prosecution.
Please contact the office on 66580309 to make an appointment to discuss any details that you are not sure about or go to https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Rental-property-expenses/.