Last year, the ATO singled out rental property deductions as a “top priority” with the Commissioner of Taxation Chris Jordan claiming that errors were found in almost 90 percent of returns.
For tax time 2019, the ATO doubled its audits with a specific focus on overclaimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes lent out to others, and omitted income from accommodation sharing.
The majority of these errors were down to “simple mistakes” from investors and failing to disclose information to their accountants at tax time.
What the ATO is finding when reviewing returns and audits is people more often than not, are making simple mistakes or have a lack of understanding of what they’re allowed to do and what they’re not allowed to do.
The vast majority of people don’t deliberately go out to claim things they shouldn’t to obtain refunds.
It comes down to lack of education and lack of understanding.
Accountants are often at the mercy of their investor clients, and the ATO acknowledges that they are only as good as the information provided to them by their clients.
Accountants out there are highly skilled, we understand the tax law, we can really help you make sure you’re structured in the right way and help you set up the proper recording requirements and all else included.
You need to talk to your accountant, explain what you’ve done, why you’ve done it, how you’ve set it up, and then we can give you that right advice.
What the ATO is seeing is incorrect interest claims for the entire investment loan where it has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are non-genuinely available for rent.
Investors receiving income from short-term rentals through sharing economy platforms such as Airbnb should be aware of the ATO’s new data-matching program that will identify taxpayers who have left out rental income and overclaimed deductions. According to the ATO an “extensive data-matching program” will be used to identify taxpayers receiving income from short-term rentals with information from online platform sharing sites.
For the first time in the last calendar year ATO collected data off a lot of these platform sites so they could see who rented their property out, for how long and what sort of income they earned from it.
On top of that the ATO will use the data to audit people. For example, where people are on these platforms renting out 10, 20, 30 properties or rooms across various properties and not reporting on their tax obligations the ATO will take a pretty firm stance.
To help prevent your own property deductions or if you have any questions about the matter, contact us by calling 08 8418 2111 or email us at enquire@addept.com.au