Dodgy rental deductions
Tax Office to double audits of dodgy rental deductions
Rental property owners are being warned to ensure their claims are correct this tax time, as the Australian Taxation Office (ATO) announces it will double the number of audits scrutinising rental deductions.In the 2017–18 financial year, more than 2.2 million Australians claimed over $47 billion in deductions.
Assistant Commissioner Gavin Siebert says that this year, the ATO has made rental deductions a top priority. “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.
When it comes to dodgy claims, the ATO’s detection methods are becoming more advanced.
While no penalties will apply for taxpayers who amend their returns due to genuine mistakes, deliberate attempts to over-claim can attract penalties of up to 75% of the claim. In 2017–18, the ATO audited over 1,500 taxpayers with rental claims, and applied penalties totalling $1.3 million.
In one case, a taxpayer was penalised over $12,000 for over-claiming deductions for their holiday home when it was not made genuinely available for rent, including being blocked out over seasonal holiday periods. Another taxpayer had to pay back $5,500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.
Key issues the ATO is checking this tax time
Is loan interest being claimed correctly?
Do you know the difference between capital works and repairs?
Initial repairs for damage that existed when the property was purchased, such as replacing broken light fittings or repairing damaged floorboards, can’t be claimed as an immediate deduction but may be claimed over a number of years as a capital works deduction.
Do you have a holiday home?
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.