ATO is watching – Rental property tax deductions.
According to the Australian Tax Office (ATO), rental properties have been identified as one of its three focus areas for the financial year ending 2023.
The ATO says mistakes in these areas have become common and rental property deductions have moved to the top of its list for closer scrutiny. The other two areas to take the top three in no particular area is investor tax returns and working from home expenses claimed.
The assistant commissioner, Tim Loh of the ATO had this to say… “Within these areas, we have identified common mistakes and are particularly focused on addressing these and supporting taxpayers and registered tax agents to get their claims right this year,”.
“We expect fewer people will receive a refund or may receive smaller refunds than they were expecting, and more may have tax debts to manage.”
Mr Loh also mentioned an alarming nine out of ten rental property owners are getting their returns wrong. The most common errors identified were as follows:
- Omitting rental income
- Overclaiming expenses
- Claiming property improvements that are deemed private residences rather than investment properties.
The ATO also confirmed that 87% of property investors use a tax agent to complete the tax returns.
The ATO will be placing a focal point of how investors claim interest from their loans, particularly where part of the loan was used for other purposes.
“You can only claim interest on a loan used to purchase a rental property to earn rental income,” Tim Loh explained. “If your loan also includes a private expense, such as a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income.”
Capital gains tax (CGT) is an additional focus from the ATO. They want to ensure all capital gains and losses are calculated and recorded correctly.
Last but not lease Tim Loh concluded his statement by quoting “Don’t fall into the trap of thinking we won’t notice if you sell an asset for a gain and don’t declare it.”
What to do next?
Buying and owning an investment property is undoubtedly rewarding asset. It can provide you a regular income stream through monthly rent, long term capital growth through the property appreciating over time and it offers investors a number of tax entitlements.
If you’d like to learn more about buying an investment property, please don’t hesitate to contact us. We would welcome the opportunity to help with your property purchase.
Our YouTube channel and Market Insights also provide a wealth of information to assist you with many areas relating to property.
While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more please contact us. We welcome the opportunity to assist you.
August 2023
