The Australian Tax Office (ATO) has warned rental property owners to “ensure their claims are correct this tax time” as it will double the number of audits scrutinising rental deductions. From July 2017, for most taxpayers, travel expenses relating to inspecting, maintaining or collecting rent for a residential investment property became non-deductible.  These changes, together with the ATO finding that 9 out of 10 rental deductions contain errors, has resulted in the ATO advising that detecting overclaims and non-compliance will be a top priority this financial year.

As a result of the identified over claims, the ATO plans to more than double the number of in-depth audits to 4500 taxpayers. In 2017-18, more than $47 billon was claimed in deductions with the ATO handing out $1.3 million in taxpayer penalties. As part of the increased ATO scrutiny, the ATO will be focusing 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”.

The increased focus is part of the ATO’s overall crackdown on overclaiming and non-compliance by taxpayers. In recent articles, we’ve covered the R&D audits and how Australia’s federal agencies are now using advanced data-matching technology to weed out non-compliance. In this instance, the ATO will be using a range of third party information including data from financial institutions, property transactions, rental bonds from all states and territories, online accommodation booking platforms, utilities, tolls and even social media data to determine claim eligibility.

What should you do?

It’s vital that taxpayers clearly track and declare any money earned as income as well as any deductions for private use. The ATO suggests considering the following key issues:

• Ensure loan interest is correctly claimed – while a portion of loan interest can be claimed as a deduction, loan money used for personal use cannot be claimed.
• Understanding the difference between capital works and repairs – While repairs or maintenance are deductible immediately, improvements or renovations are categorised as capital works and are deductible over several years.
• Ensure records are maintained – failure to produce records and receipts is the number one reason for disallowing a claim or incurring a penalty.
• Holiday homes – holiday homes give rise to common errors.  They are considered private assets for which you generally cannot claim deductions or where deductions are limited to actual usage periods.
• Damaged or destroyed properties – the treatment of insurance payouts and your costs in rebuilding, repairing or replacing the assets can give rise to complex issues which result in incorrect claims.

Should you require further information to the above or have any questions about how this may impact you, please do not hesitate to contact your engagement partner on 02 9283 1666.