Accountants with clients who have rental properties have been warned of the ATO’s “top priority” for tax time 2019, after Commissioner Chris Jordan said that a random audit sample of returns with rental deductions found that nine out of 10 contained an error.
ATO assistant commissioner Gavin Siebert said that taxpayers can expect the number of in-depth audits to more than double this year to 4,500, with a specific focus on overclaimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing.
In 2017–18, the Tax Office audited over 1,500 taxpayers with rental claims and applied penalties totalling $1.3 million.
In one case, a taxpayer was penalised over $12,000 for overclaiming deductions for their holiday home when it was not made genuinely available for rent, including being blocked out over seasonal holiday periods.
Another taxpayer had to pay back $5,500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.
“We use a range of third-party information including data from financial institutions, property transactions and rental bonds from all states and territories, and online accommodation booking platforms, in combination with sophisticated analytics to scrutinise every tax return,” Mr Siebert said.
“Where we identify claims of concern, ATO staff will investigate and prompt taxpayers to amend unjustifiable claims. If necessary, we will commence audits.
“Once our auditors begin, they may search through even more data including utilities, tolls, social media and other online content to determine whether the taxpayer was entitled to claims they’ve made.”
The key issues
The Tax Office will take a closer look at loan interest, whereby some taxpayers have been using some of the loan money for personal use such as paying for living expenses, buying a boat or going on a holiday and then claiming that loan interest as a deduction.
Rental property owners have also been warned on properly differentiating between capital works and repairs, and what is deductible immediately or over a number of years.
The correct apportioning of holiday homes being let out to family or friends below market rates will also be scrutinised.
This week, the ATO also reminded tax agents that the ability to claim travel to residential rental properties was no longer allowed, ever since rules changed from 1 July 2017.
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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.