The Australian Taxation Office (ATO) is expected to send more letters addressed to Australians who need to explain questionable tax returns—in line with its commitment to ramping up crackdown on dodgy claims.
The government agency revealed that it would focus its scrutiny on the investment property deductions, among others.
“The ATO is on the warpath – they are targeting investors or property owners who aren’t doing the right thing,” Peter Locandro, partner, Chan & Naylor Wheelers Hills told Your Investment Property.
Over 2.2 million Aussies claimed more than $47 billion in deductions in the 2017-2018 financial year, led by work-related expenses and rental claims— and ATO announced about two months ago that it would double the number of audits scrutinising rental deductions.
No penalties would apply for taxpayers who amend their returns due to genuine mistakes, but deliberate attempts to over-claim can attract penalties of up to 75% of the claim.
ATO will be looking at the incorrect apportionment of rental income and expenses between owners. For instance, deductions on a jointly-owned property are claimed by the owner with the higher taxable income rather than jointly.
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.
“We expect to more than double the number of in-depth audits we conduct this year to 4500, with a specific focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others and omitted income from accommodation sharing,” Assistant Commissioner Gavin Siebert said in a statement. “Once our auditors begin, they may search through even more data, including utilities, tolls, social media, and other online content to determine whether the taxpayer was entitled to claims they’ve made.”
Many property players, though, have inadequate knowledge on the matter, according to Locandro.
“A lot of ordinary Australians have invested into the property market over the last 10 years, but don’t understand the deductibility of certain expenses. They have been advised incorrectly or just don’t understand the tax rules,” he told Your Investment Property.
Chan & Naylor Wheelers Hills recommends property owners to seek the help of a property tax specialist while keeping track of their records.
“You must keep all documents. This would include but is not be limited to, rental statements, invoices such as water and council rates, insurance, and the big one, repairs and maintenance. Bank and loan statements are also needed,” Locandro told Your Investment Property. “It’s simple to stay ahead – keep good records, and only claim what you can legitimately claim. If you can’t substantiate it, don’t claim it. Surround yourself with a property tax specialist that does this everyday as the consequences for not doing so could spell trouble, and cost you a lot more.”
