We have previously talked about this matter, but considering the ATO’s recent focus on scrutinising rental property owners to ensure compliance, it is advisable to revisit it with a tax advisor.
So what do you have to watch out for now in this regard? The following issues are being looked at closely by the ATO
- Are you renting the property to family members or friends for below-market rent? If some “mates rates” are charged, this will limit the amount of tax deductions you can claim for that period.
- The ATO is looking at tax returns where expenses for the entire year have been claimed, but rent is only received for part of the year.
- Are you claiming expenses on a property also being used as your holiday home? What period are you claiming the expenses for? Are you claiming for a period where it is not rented, but you are claiming it is “available for rent”? If that is the case, then you will need to be able to prove it is available for rent and being advertised in a way that is likely to lead to it being rented. In particular, setting the rent too high or setting unreasonable rental conditions, so it is unlikely that anyone will rent it will lead to close scrutiny by the ATO.
- Have you claimed repairs on the property? You must ensure that these repairs are not capital in character and are not initial repairs incurred soon after the property purchase (in which case they could be seen as capital). The ATO has recently sent over 1000 letters to property owners who had potentially claimed “initial repairs”.
The ATO can increasingly utilise third-party data matching to confirm what has been claimed in your tax returns. This includes data matching with sites like Airbnb and Stayz, comparing your claims against similar properties, and reviewing advertising and property search engines to see what properties are being rented out. If you are doing the wrong thing, you are more likely to get found out!
The ATO targeting reinforces your need to keep your tax affairs in order and only claim what is allowed regarding rental properties. If unsure how this might affect you, don’t hesitate to contact your client manager.
Kreston Stanley Williamson Team
*Correct as of January 2018
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.