The ATO on Tuesday said that Australia’s 1.8 million rental property owners claimed a total of $38 billion in deductions for the 2019–20 financial year.
Of those tax returns that were selected for an audit, more than 70 per cent required adjustments, said ATO assistant commissioner Tim Loh.
“People should remember that there’s no such thing as free real estate when it comes to their tax returns,” Mr Loh said. “Our data analytics scrutinise returns for rental deductions that seem unusually high. We will ask questions, and this may lead to a delay in processing your return.”
Common mistakes include failing to declare all rental income or any capital gains from selling an investment property, an issue that the ATO now has better oversight of, said Mr Loh.
“We are expanding the rental income data we receive directly from third-party sources such as sharing economy platforms, rental bond authorities and property managers,” he said.
“The ATO often allows taxpayers who have made genuine errors to amend their returns without penalty. But deliberate attempts to avoid tax on rental income will see the ATO take action.”
Other errors that the ATO commonly sees include incorrectly claiming capital works, such as immediately claiming the full amount for a kitchen renovation, instead of spreading it over a number of years.
Mr Loh said investors have also tripped up by claiming deductions on redrawn mortgage loans used for personal expenses, such as buying a boat or going on a holiday.
“Most people we contact about their rental deductions are able to justify their claims,” said Mr Loh.
“However, there are instances where we have to knock back claims where taxpayers didn’t keep receipts, claimed for personal use or claimed for ineligible deductions.”
The ATO also issued advice on reduced rent and deferred payment. For home owners who have negotiated reduced or deferred rent, payments don’t need to be declared until they’re received. Mr Loh said back payments for deferred rent, or insurance payments received to cover lost rent, should only be declared in the financial year within which they were received.
Even if rent is reduced, though, normal expenses can be claimed, so long as the reduced rent is determined at “arms’ length” and considers current market conditions.
The same is true for those whose income was affected by travel restrictions. According to the Tax Office, if a home owner planned to rent a property in 2020–21, but those plans were thwarted by restrictions, they can still claim the same proportion of expenses — though only if the property was not used privately.
John Buckley is a journalist at Accountants Daily.
Before joining the team in 2021, John worked at The Sydney Morning Herald. His reporting has featured in a range of outlets including The Washington Post, The Age, and The Saturday Paper.