By Tina Zawila
The Australian Taxation Office (ATO) issued an article with this title on 12th June, warning rental property owners that their tax returns are in the spotlight this tax time. Their statistics indicate that the majority of rental property owners are making errors in their tax returns.
I wrote a similar article in late April, but as we are about to embark on the 2024 Tax Season, it’s worth highlighting how focused the ATO is on this matter. Their article says:
The most common mistake is not understanding what expenses can be claimed and when. In particular, the difference between what can be claimed for repairs and maintenance versus capital expenses. Other mistakes on the ATO’s radar include overclaimed deductions and a lack of documentation to substantiate the expenses claimed.
The ATO receives data from a range of sources like banks, land title offices, insurance companies, property managers and sharing economy providers, and cross checks this data to determine the accuracy of tax returns lodged by rental property owners.
The ATO is quoted as noting that they sometimes see rental property owners ‘double dip’ on expenses that the property manager has arranged and included on the property’s income and expenses report for the year. Often, property managers will pay for expenses like repairs from the rent received. The amount they then remit to the property owner is net of these expenses. However, taxpayers sometimes claim these expenses in their return whilst only declaring the net rental income, therefore effectively claiming the expenses twice.
Another common issue is with the amount claimed as an interest deduction, particularly where the taxpayer has refinanced or redrawn on the loan for the rental property to pay private expenses such as a new car, school fees or a holiday. If this has occurred, the interest deduction must be apportioned. The ATO article quotes ATO Assistant Commissioner Rob Thomson saying, “It’s not a matter of simply paying back the private part of the loan and then claiming all interest as deductible.”
The ATO Assistant Commissioner Rob Thomson encourages rental property owners to seek professional advice and is quoted saying “Rental property investments and taxation can get tricky, so it pays to get the right advice from the very beginning. Don’t rely on things you hear at a Sunday afternoon barbeque.”
We couldn’t agree with this statement more. It pays to seek professional advice regarding the preparation of your income tax return. Call the professional team at UHY Haines Norton CQ today on 07 4972 1300 to book your 2024 income tax return appointment.