The ATO zeros in on dodgy rental property deductions

The ATO zeros in on dodgy rental property deductions

According to the Australian Taxation Office (ATO), 1.8 million Australians – that’s 8 per cent of the population – own an investment property. And in the 2017-18 financial year, more than $47 billion was claimed in rental property deductions.

The ATO announced earlier this year that errors in these claims were the second biggest contributor to the $8.7 billion tax gap. What’s more, in a press release, Assistant Commissioner Gavin Siebert revealed that 90 per cent of reviewed deductions contained inaccuracies.

“A random sample of returns with rental deductions found that nine out of 10 contained an error. We are concerned about the extent of non-compliance in this area and will be looking very closely at claims this year,” he said.

In response to these findings, the ATO doubled the number of audits scrutinising rental deductions in the 2018-19 financial year.

In this article, we’ll take a closer look at the key areas of focus, how the ATO determines the legitimacy of a claim, and how you can protect yourself as a property owner.

Related: How do I advertise my private rental property?

Key focus areas

This year, the ATO had the following hot on their radar.

Excessive interest expense claims

Excessive interest expense claims were top of the ATO’s list. This includes situations where a property owner claimed borrowing costs on their family home and their rental property.

Inaccurate apportionment of rental income and expenses

Jointly owned properties were another point of focus. The ATO was looking for the incorrect appointment of rental income and expenses between owners. The expenditures were sometimes claimed by the owner with the higher taxable income instead of jointly to minimise their tax obligations.

Ingenuine rentals

According to the ATO, rental property owners can only claim for the periods of time when their property is rented out or genuinely available. In the past, the ATO found evidence of homeowners – especially those that rent their investment as a holiday home – claiming deductions for their property, when, in reality, their property was not being rented out. Instead, it was lived or holidayed in by the owners, their family, or their friends – rent-free.

Incorrect claims for newly purchased properties

The ATO zeroed in on false claims for newly purchased rentals. Expenses related to the repair of damage that existed at the time of purchase can’t be claimed right away. Instead, property owners can deduct the costs over several years.

How the ATO determines the legitimacy of a claim

When it comes to pinpointing dodgy claims, the ATO’s tactics are becoming more sophisticated. They now have authorised access to a myriad of third-party data – including holiday rental sites like Airbnb, financial institutions, and rental bond transaction processors.

Protect yourself with this golden rule

What happens if the ATO calls out a deduction that you believe to be legitimate? If you keep good records, you’ll have no problem disputing their claim.

As a rental property owner, it is essential to hold on to all invoices, receipts, and bank statements. You should also keep proof that your home was available for rent – a copy of your online rental listing should do the trick.

Remember, fraudulent claims and doctored records can result in high penalties or even prosecution. Don’t risk it.

Make sure you are meeting your obligations as a landlord

Ignorance is no excuse. If you have decided to manage your own rental property, it’s vital that you understand your responsibilities.

If you’d like one-on-one support, find out more about our exclusive landlord coaching services today.

Disclaimer: This article is for informational purposes only. Contact your financial advisor or the ATO for advice before making any decisions.

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