Earlier this year, commissioner of taxation Chris Jordan singled out rental deduction claims as a priority for his agency this tax time, after a random audit sample of returns with rental deductions found that nine out of 10 contained an error.
The ATO has promised to double the number of in-depth audits 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.
With that in mind, the Tax Office has now developed a new toolkit for tax agents and their rental property owner clients to help them lodge correctly.
According to the toolkit, the top 10 common mistakes include not apportioning expenses and income for co-owned properties, not making sure property is genuinely available for rent, and not getting initial repairs and capital improvements right.
Other mistakes include those around claiming borrowing expenses, claiming purchase costs and claiming interest on loans.
Loan interests, in particular, will attract ATO scrutiny after it was found that 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.
The correct apportioning of holiday homes being let out to family or friends below market rates will also be scrutinised.
Keeping the right records, getting construction costs right and ensuring clients get their capital gains right round off the ATO’s key tips.
You can download the rental property owners toolkit here.
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.