INDUSTRY NEWSNationalReal Estate News

ATO has rental property deductions in its sights

The Australian Tax Office (ATO) will target rental property deductions and capital gains tax this tax season.

According to the ATO’s review of income tax returns, nine in 10 rental property owners are getting their return wrong, with rental income being left out, or mistakes being made with property related deductions – such as over claiming expenses or claiming for improvements to private properties.

ATO Assistant Commissioner Tim Loh said it’s important for investors to properly prepare their tax returns.

“We encourage rental property owners and their registered tax agents to take extra care this tax time and review their records before lodging their return,” Mr Loh said.

He said the ATO will be particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses, where part of the loan was used for private purposes or the loan was refinanced with some private purpose.

“You can only claim interest on a loan used to purchase a rental property to earn rental income – don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income,” Mr Loh said.

According to Mr Loh, the ATO has sophisticated data-matching capabilities, which include rental property-related data, and has recently implemented a new residential investment property loans data-matching program.

“This is just one example of the work we are doing to help you get your return right and make sure people are claiming expenses correctly,” he said.

Mr Loh said another focus for the ATO will be around capital gains tax (CGT).

“Generally, your main residence is exempt from CGT, however if you have used your home to produce income, such as renting out all or part of it through the sharing economy, for example Airbnb or Stayz, or running a business from home, then CGT may apply,” he said.

The ATO said it was important to keep records of the income-producing period and the portion of the property used to to produce that income to calculate capital gain.

If you used your property to earn income, and qualify for an exemption, make the election in your tax return.

“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,” he said.

Mr Loh said the ATO was committed to supporting taxpayers to meet their obligations and has a range of resources available to help.

“If you’re feeling overwhelmed or getting behind with your tax, let us know as early as possible or have a chat with your registered tax agent so we can work with you to find a solution,” he said.

“Don’t bury your head in the sand.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.