The ATO reported that the majority of rental property owners were making errors in their tax returns, despite 86 per cent using a registered tax agent.
On the office’s radar are common mistakes made by owners in past years, such as owners not knowing what can and what cannot be claimed, and knowing the difference between claims for repairs and maintenance versus capital expenses.
ATO Assistant Commissioner Rob Thomson said that dodgy deductions were among these common mistakes that the ATO was on the lookout for.
“It’s normal for landlords to have to fix or replace damaged items... but there is a bit of a myth that all expenses can be claimed immediately,” Mr Thomson said.
“A repair can usually be claimed straight away, but capital items, think dishwashers, curtains or heaters, can only be claimed immediately if they cost $300 or less, otherwise they need to be claimed over time,’’ Mr Thomson said.
“We sometimes see rental property owners ‘double dip’ on expenses that the property manager has arranged and included on the property’s income and expenses report for the year.”
Another common deduction that is often misreported is the interest on mortgages claimed by rental property owners.
The ATO estimates that incorrectly reporting interest expenses account for 42 per cent of the $1.2 billion in ‘individuals not in business’ tax gap associated with rental properties.
Mr Thomson said it was a common issue where taxpayers would redraw or refinance a loan for their rental property, use the money for private expenses, and then claim the whole amount of interest on the loan as a deduction for the year.
“It’s also not a matter of simply paying back the private part of the loan and then claiming all interest as deductible.
“Payments must be apportioned between the private and investment components for the life of the loan,’’ Mr Thomson said.
Another common mistake is the lack of documentation to substantiate claims and deductions.
Records of claims or expenses and deductions can be by paper or electronic, but must include: the name, ABN or business name of the supplier; the expense amount; the goods or services purchased; the date purchased; and the date the document was produced.
Mr Thomson said getting tax returns right should be a priority for property owners, and it all started with asking your agents the right questions.
“If you use a tax agent, make sure you let them know all about your rental property, including full records of your expenses.
“If you have a nagging question or something doesn’t make sense, make sure you ask your agent when you’re working with them.
“Rental property investments and taxation can get tricky, so it pays to get the right advice from the very beginning,” Mr Thomson said.
Mr Thompson said taxpayers were “responsible for what they include in their tax return” with, or without, a registered tax agent.
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