The Australian Tax Office (ATO) has put property investors on notice this tax time, warning that it will be scrutinising these claims closely.
More than 1.8 million Australians owning rental properties claimed $38 billion in deductions in the 2019-20 financial year, with ATO assistant commissioner Tim Loh flagging extended surveillance this year.
He said the most common mistake investors make is failing to declare all their income, including capital gains from selling the investment property or holiday home.
The ATO has already been forced to adjust some 70 per cent of property investors’ tax returns selected for review.
“To put it simply, you should expect tax consequences for any property that you earn income from that isn’t your main residence,” Loh said.
“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. We will contact taxpayers about income they’ve received but haven’t included in their tax return.”
As such, some investors will be required to repay some of their refund, he added.
“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.”
Property investors need to remember that there’s “no such thing as free real estate” and that the ATO searches returns for deductions that seem unusually large.
“We will ask questions, and this may lead to a delay in processing your return,” he said.
While most investors contacted have been able to justify their claims, there have also been instances where the ATO has disallowed the claims.
These have often been claims for interest charges on personal loan amounts and immediate claims for the full amount for capital works like renovations.
Capital expenses like kitchen renovations are not deductible immediately and need to be spread over a number of years.