In November 2017, the government introduced new rules around tax deductions for travel expenses associated with residential property investments, and restriction of deductions for depreciation of items in residential rental properties, with a retrospective application from 1 July 2017.
The Tax Office has issued a reminder that clients are no longer able to claim any deductions for the cost of travel they incur relating to inspecting, maintaining, or collecting rent for a residential rental property unless they are carrying on a business of property investing or are an excluded entity.
“If your clients have already incorrectly claimed deductions for the cost of travel to and from their property in their 2018 tax return, they will need to request an amendment,” said the ATO.
H&R Block director of tax communications Mark Chapman had earlier told Accountants Daily that the changes have been a “hot issue” for clients, with most of them oblivious to the new law.
“A lot of clients have been coming into our offices without really understanding that they have been affected by those changes and they think they can claim things that they now can’t and a lot of them are not very happy that they can no longer make these claims particularly around travels costs,” said Mr Chapman.
“It just emphasises that if you’re going to make the system complicated for people, you can’t be too surprised if people then decide to get professional help and that’s actually a good thing.
“We don’t want people still making claims for travel deductions to their property because they don’t realise it has changed and it is the accountant who can provide that guidance and say 'look, you're affected by this, you can no longer make this claim'.”
Tax form confusion
Mr Chapman has also seen confusion from property investors as there is still a provision to claim travel on tax forms.
“Some additional confusion’s been caused, particular in relation to the travel, because if you actually look at the tax return, there is still a box there where you can claim travel, even though the law says you can’t, and I think that has tripped up some people,” Mr Chapman told sister website, Smart Property Investment.
“It is definitely worthwhile ensuring that you get those tax claims correct, that you disclose all of your income properly, but equally, you do actually claim everything that you are entitled to, because there are lots of deductions that property investors can potentially claim, some of which are quite obscure,” he added.
“The ATO have got a real focus on property investors at the moment. They believe that some property investors are claiming excessive deductions or claiming for things that they’re not entitled to at all.”
Are you thinking of expanding your offering into SMSFs to grow your client base? Become a pro at SMSF fundamentals and make your clients bulletproof with the SMSF Foundations course. Learn directly from Aaron Dunn from Smarter SMSF as he deep-dives into the fundamentals you need to know to successfully undertake your work as an SMSF practitioner. Earn up to 21 CPD hours! Learn more
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.