The Australian Taxation Office (ATO) found that 90% of rental deductions are inaccurate, signalling a crackdown on investment property claims.
The government agency announced earlier this year that it would double the number of audits scrutinising rental deductions.
The move came as nearly 2.2 million investment property owners experienced financial pressure from dropping property prices, oversupply, and increasing vacancy rates in every capital city, according to data from Domain.
ATO assistant commissioner Karen Foat said the crackdown’s top priority is investment property.
“Cash-strapped investors could be borrowing more than required to supplement their investments or lifestyle with ‘cheap money’ that they can claim as a loss and offset against their other income,” Todd Want, William Buck tax services director, told the Australian Financial Review. “If you have a loan that you use to buy an investment property, but then you draw down on the loan and pay for a holiday or car – the purpose of the loan is now partly investment and partly private, meaning that only some of the interest on the loan is likely to be tax deductible.”
ATO said it would focus on investors who make one-off deductions for repairs or additions to an investment property that need to be claimed over several years.
“The key point here is – were the materials the same, or similar and does the repair achieve the same function? If you replace it with something that is superior, then you probably can’t claim the deduction, it must be depreciated over a number of years,” Want told the Australian Financial Review. “It might not be deductible in the year of replacing it, but instead needs to be depreciated and claimed over time.
The ATO said it would also hunt Aussies who fail to declare income from short-term rentals or renting part of a house or unit. In addition, the government agency will reassess holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out. Landlords should not claim for periods of personal use.
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