Tax time starts a little over a month from now – but property investors should start preparing as soon as they can, as they face greater scrutiny by the Australian Tax Office (ATO).
The tax authority has singled out rental property owners, and claims "the group has made large number of mistakes, errors, and false claims.”
“The ATO is focusing on taxpayers who claim deductions for holiday homes that are not actually available for rent or only available to friends and family,” Assistant Commissioner Kath Anderson said late last March.
There have also been times when a property is not rented or genuinely available for rent. Anderson said some taxpayers claim their property is available for rent, but when the ATO investigates, it is clear they have little intention of renting it out.
“We see things like unreasonable conditions placed on prospective renters, rental rates set above market rates, or failing to advertise a holiday home in a way that targets people who would be interested in it,” she added.
However, landlords can still go through tax time relatively stress-free, as long as they get the basics right. Carolyn Parrella, executive manager for Terri Scheer Insurance, has given YIP three essential tips that landlords should bear in mind:
1. Ensure you're claiming expenses correctly
This fiscal year, the federal government has instituted changes to eligible deductions that could have a significant impact on some landlords’ tax claims. Tax deductions for travel related expenses are now banned, to stop landlords who claimed deductions for visiting holiday homes while on personal trips.
But Parrella stressed there are many other legitimate expenses that can leave landlords thousands of dollars out of pocket by under-claiming. “Body corporate fees on strata or community titled properties may be an eligible claim. If you are a self-managed landlord, you may be able to offset some of the cost of your home office by claiming it as part of your tax return. This can include a fair and reasonable percentage of software, printing and internet costs.”
2. Claim the correct holiday home deductions
There are more than two million property investors in Australia, with approximately 350,000 of them owning homes in holiday destinations, according to Parrella’s figures.
While there are a number of benefits to owning a holiday home, Parrella stressed that landlords cannot claim days used for their personal holidays, or when they let their family and friends use the property without charge. “Landlords can only claim expenses for when the holiday home was available for paid rent.”
She advised landlords to keep a record of when their holiday home was rented, when it was vacant, and when it was used for personal holidays to avoid any confusion.
3. Get on top of your insurance (so be sure to claim your premiums, and use EOFY as a reminder to shop around for the best deal)
Landlords should know that their insurance policy premium is a tax deductible expense. The end of the fiscal year can be the time to review one’s policy to ensure coverage of specific risks associated with property investing. “Not all landlord insurance policies cover for professional fees incurred as a result of an ATO tax audit relating to your investment property,” Parella said.
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