- As it broadens its net of sources to capture wrongdoers, the Australian Taxation Office (ATO) is urging property investors to avoid typical tax mistakes
- Over 1.8 million Australians held rental properties in 2019–20, claiming a total of $38 billion in tax deductions
- ATO has so far adjusted more than 70 per cent of the 2019–20 returns selected for a review of rental information
- "You should expect tax consequences for any property that you earn income from that isn’t your main residence," Assistant Commissioner Tim Loh says
The Australian Taxation Office (ATO) is warning property investors to avoid common tax pitfalls that can cause delays in refunds or lead to audits as it widens its net of sources to catch wrongdoers.
Over 1.8 million Australians held rental properties in 2019–20, claiming a total of $38 billion in tax deductions.
ATO has so far adjusted more than 70 per cent of the 2019–20 returns selected for a review of rental information.
The most common error rental property and vacation homeowners make, according to Assistant Commissioner Tim Loh, is failing to disclose all of their income. This includes neglecting to report any capital gains from the sale of a rental property.
"To put it simply, you should expect tax consequences for any property that you earn income from that isn’t your main residence," he said.
"We are expanding the rental income data we receive directly from third-party sources such as sharing economy platforms, rental bond authorities, and property managers.
"We will contact taxpayers about income they’ve received but haven’t included in their tax return. This will mean they need to repay some of their refund. The ATO often allows taxpayers who have made genuine errors to amend their returns without penalty. But deliberate attempts to avoid tax on rental income will see the ATO take action."
Mr Loh said people should remember there is no such thing as free real estate when it comes to their tax returns.
"Our data analytics scrutinise returns for rental deductions that seem unusually high. We will ask questions, and this may lead to a delay in processing your return," Mr Loh said.
"Most people we contact about their rental deductions are able to justify their claims. However, there are instances where we have to knock back claims where taxpayers didn’t keep receipts, claimed for personal use, or claimed for ineligible deductions."
The ATO said it frequently denies requests for interest on personal loan amounts and prompt claims for the whole amount for capital works (such as a kitchen renovation), so keeping solid records is critical.
The interest on a loan used to purchase a rental property and rent it out at market rates is tax deductible. You can't collect the interest on that component of the loan if you withdraw money from it for personal reasons, such as buying a boat or going on vacation.