Currently A.T.O. is focusing on rental properties, and more specifically the common mistakes people make when claiming on them.
The Australian Taxation Office is paying particular attention to:
- higher than expected rental interest expense claims, and
- holiday homes that are not genuinely available for rent.
They are warning property investors that if you are claiming deductions for your rental property, make sure you include all your rental income and that your rental property was genuinely available for rent when the expense was incurred.
The ATO’s ability to identify incorrect rental property claims is becoming more sophisticated due to enhancements in technology and the extensive use of data.
Here are 2 case studies that illustrate common mistaken claims:
A holiday home not genuinely available for rent
John has a newly purchased rental property that has not returned any rental income.
He told the ATO that the property was occasionally advertised on community noticeboards and websites.
John was unable to prove there was a genuine arrangement in which he actively sought tenants, or had taken sufficient steps to genuinely advertise the property for rent.
A rental loss of almost $60,000 was disallowed and penalties were applied.
Incorrect claims for a newly purchased rental property and false claims
Nancy recently purchased a rental property and had her tax return amended by the ATO to remove deductions for repairs, capital works and incorrectly apportioned borrowing expenses.
Nancy had inappropriately claimed a deduction for repairs to defects present in a newly purchased property.
The capital works and borrowing expenses should have been spread over several years.
Nancy also provided false receipts for property management fees undertaken by a family member.
Nancy was required to pay more than $57,000 back to the ATO as well as over $10,000 in penalties for making a false statement in her tax return.
The bottom line:
When it comes to deductions at tax time you should claim everything you are entitled—no more, no less.
The A.T.O. provides some guidelines to property investors at this site