Key takeaways
If you’re a property investor, watch out!
The ATO is after property investors and those involved in trusts and private investment companies, and will use advanced technologies shared with asset managers and banks to uncover potential abuses of investment loans and unreported asset sales.
They are also scrutinising work-from-home deductions, which soared due to the COVID-19 pandemic.
The ATO is scrutinizing taxpayers who claim a full CGT exemption while renting part of their main residence, and investors who falsely claim the main residence exemption.
The ATO is vigilant about the use of complex ownership structures and family trusts, especially those distributed to adult children in lower tax brackets, and wants to ensure that they are not being used to avoid paying tax.
To claim working-from-home expenses, you must be working from home to fulfil your employment duties, incur additional running expenses as a result of working from home, and have records that show you incur these expenses.
The ATO is turning its attention to property investment deductions, and plans to use data-matching with mortgage lenders to verify claims on returns. Be careful to apportion your expenses if you rent out your holiday home, and take steps to find tenants during periods it wasn't occupied.
If you have taken out a loan to purchase an investment property, you can claim the interest charged on that loan as a deduction.
The tax office has put those with a side hustle on notice, especially as many Aussies are now working multiple jobs or supplementing their income with 'side hustles' or 'gig' economy activities as their cost of living has skyrocketed.
The increased oversight from the ATO underscores the importance of good record-keeping and staying informed about your tax obligations. Metropole Wealth Advisory can help you set up the most appropriate entities for your needs.
If you’re a property investor, watch out - the taxman is after you.
You and all other property investors.
This means Australian property investors should be on high alert as the Australian Taxation Office (ATO) implements innovative strategies and forms new alliances to recuperate an estimated $9 billion revenue deficit.
They will use advanced technologies shared with asset managers and banks to uncover potential abuses of investment loans and unreported asset sales by Australia’s rental property owners and those involved in trusts and private investment companies.
Simultaneously, the ATO is scrutinising work-from-home deductions, which soared due to the COVID-19 pandemic, and is discouraging individuals from replicating their previous years' claims. Post Covid there are new methods to make working-from-home claims.
Here are nine areas that I think will be closely monitored by the ATO:
1. Capital gains scrutiny
Capital gains, particularly from property sales and assets like cryptocurrencies, are high on the ATO's radar.
ATO assistant commissioner Tim Loh has emphasizes the importance of correctly calculating capital gains tax (CGT) liabilities and expressed the agency's intention to determine CGT liabilities due to widespread issues involving inaccuracies or evasion attempts.
Particularly in the spotlight are taxpayers who claim a full CGT exemption while renting part of their main residence.
Similarly, they are particularly interested in ensuring that investors do not falsely claim the main residence exemption, which is only applicable if the property has been your primary residence.
The ATO will also scrutinize cryptocurrency gains and amassing records from Australian cryptocurrency service providers in a data-matching program to ensure proper tax payment by cryptocurrency traders.
2. Trusts on notice
The ATO is vigilant about the use of complex ownership structures and family trusts, which can sometimes be used to minimize tax obligations.
Especially those distributed to adult children in lower tax brackets are under the ATO's microscope.
While these structures are legal and often beneficial, particularly complex usage could invite unwanted attention.
This sector, valued in billions, has seen increased interest in the wake of concerns regarding the proposed $3 million taxation cap on superannuation funds so the ATO wants to ensure that these structures are being used correctly and are not a mechanism to avoid paying tax.
3. Work-from-home deduction revision
With COVID-19 having forced many people to work from home, associated deductions have experienced a surge.
However, the ATO has since reduced the acceptance of these deductions and has warned taxpayers not to replicate last year's work-from-home deductions given the easing of COVID-19 restrictions.
To claim working-from-home expenses, you must:
- be working from home to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls
- incur additional running expenses as a result of working from home
- have records that show you incur these expenses.
From 1 July 2022 there are 2 methods available to calculate your claim:
A newly introduced revised fixed rate of 67¢ per hour now applies to cover energy, phone, internet and stationary expenses.
5. Property investment deductions
The ATO is turning its attention to investment properties and holiday homes, planning to use data-matching with mortgage lenders to verify claims on returns.
Common issues include excessive interest expense claims, improper income and expense apportionment between joint owners, and unfounded claims for recently purchased rental properties.
Of course, any costs associated with private use of the property are not eligible for tax deductions.
- Also read:The 8 Best Property Investment Strategies in Australia
- Also read:Adelaide housing market update | December 2024
- Also read:Perth housing market update | December 2024
- Also read:Sydney housing market update | December 2024
- Also read:Latest property price forecasts for 2025 revealed. What’s ahead in our housing markets in the next year or two?
The ATO wants to make sure that any deductions claimed with respect to holiday homes rented out for part of the year are correctly apportioned.
If you rent out your holiday home, carefully apportion your expenses taking into account whether the property was rented at a rate below market (to friends or family), whether it was available for rent during peak periods, if the owners unreasonably refused tenants and whether the owners genuinely took steps to find tenants during periods it wasn’t occupied.
And another area the ATO is watching carefully is claims for new rental properties since you can’t claim repair costs on newly purchased rental properties as an immediate tax deduction.
6. Interest expenses
If you have taken out a loan for your investment property, you can claim the interest charged on that loan as a deduction.
However, the ATO is watchful for property owners who claim interest on loans used for private purposes, such as buying a family car or going on vacation.
The deductibility of the loan will be determined by its purpose.
So, make sure your loans are correctly structured and keep good records i.e. you can demonstrate what investment asset each loan relates to.
7. Property development and renovations
The ATO carefully examines individuals undertaking property development and renovations.
Profits from these activities may be considered as business income, rather than a capital gain, meaning they are fully taxable and subject to the Goods and Services regime.
Of course, we’ve always encouraged our clients at Metropole to “manufacture capital growth” through renovations or development – but not to flip or trade but to magnify their returns.
8. Overseas investments
The ATO is also watchful for Australian residents making property or other investments overseas. Income from these properties, including rental income and capital gains, must be reported to the ATO.
9. Do you have a side hustle?
Those with a side hustle have been put on notice by the tax office especially as many Aussies are now working multiple jobs or supplementing their income with ‘side hustles’ or ‘gig’ economy activities as their cost of living has skyrocketed.
ATO assistant commissioner Tim Loh said if you earned money through continuous and repeated activities for the purpose of making a profit, then it was likely you were running a business.
“While there are always new and different ways to make money, the tax obligations remain the same. Don’t fall into the trap of forgetting to include all your income thinking the ATO won’t notice,” Loh said.
“You also need to declare any additional income earned through that side hustle.
Businesses have a range of obligations, depending on their structure and turnover, including registering for an Australian Business Number, keeping correct records and lodging the right type of tax return.
They may also have to register for goods and services tax (GST) and provide BAS statements.
The bottom line
The increased oversight from the ATO underscores the importance of good record-keeping and staying informed about your tax obligations.
And I’d also strongly recommend all property investors get a proficient team of wealth experts in their corner.
Our team at Metropole Wealth Advisory provide tailored strategic wealth advice for property investors and their families, professionals and business owners.
And we specialise in helping property investors set up the most appropriate entities for their needs.
Click here now to have a chat so you can learn about how we could formulate a Strategic Wealth Plan for you, your family, your business and your property investment ventures.
