ATO turns up the heat on holiday home deductions

An alert this week from the ATO warned accountants to ask the right questions of their clients when it came to their holiday home deductions as it would pursue those doing the wrong thing.

ATO is on a warpath to eradicate those over-indulging in deductions, accountants must be prepared to ask more questions of their clients to ensure the correct amount is claimed.

The ATO has encouraged tax agents and accountants to ask clients questions such as, “How many days was it rented out and was the rent in line with market values? Where do you advertise for rent and were any restrictions placed on tenants? Have you, your family or friends used the property?”

The tax office said questions such as those should help accountants understand whether the claims were a valid rental deduction.

Speaking at the Accountants Daily Strategy Day late last year ATO assistant commissioner Kath Anderson flagged the crackdown and said with over 2.2 million property owners filing rental claims of $42.6 billion in 2021, full compliance would add $1.6 billion in revenue.

“Holiday homes might sound minor in the scheme of things but if we applied the pub test, I don’t think we would find many Australians would think it’s ok for someone to claim thousands - in some cases hundreds of thousands - of dollars in deductions for their holiday home,” said Ms Anderson.

“We need your help to educate clients about what is a valid rental deduction and what’s not.” She said individuals who misled the tax office with their deductions were “effectively taking money from the community to pay for your holiday home”.

Accountants should be wary of claims for deductions when the property was rented at below the market rate.

For any period in which the property is rented for lower than market rates, the deduction will be limited to the rental income which is received.

Should you have any queries or require further assistance please contact our office on 8418 2111.