The Australian Tax Office (ATO) has warned it will crack down on landlords over claiming expenses and claiming for improvements to private properties.
ATO Assistant Commissioner Tim Loh said that the ATO’s review of income tax returns showed that nine out of 10 rental property owners were getting their returns wrong.
“Landlords and their registered tax agents need to take extra care when lodging this year,” Mr Loh said.
“We often see rental income being left out, or mistakes being made with property-related deductions – like overclaiming expenses or claiming for improvements to private properties.”
Mr Loh said rental income was one area where landlords needed to ensure they included all forms of income from the property.
“When preparing your tax return, make sure all rental income is included, including income from short-term rental arrangements, renting part of a home, and other rental-related income like insurance payouts and rental bond money retained,” he said.
“Income and deductions must be in line with a rental property owner’s ownership interest, which should generally mirror the legal documents.”
Mr Loh said rental property owners can’t double-dip when it comes to deductions.
“Make sure you are declaring your gross income,” he said.
“We have seen some clients declaring their net rental income after the property manager has paid their expenses and then they have claimed deductions like rates and repairs all over again.”
Mr Loh said the ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes.
“Around 80 per cent of taxpayers with rental income claimed a deduction for interest on their loan, and this is where we’re seeing the biggest mistakes,” he said.
“You can only claim interest on a loan used to purchase a rental property to earn rental income.
“If you’ve used any part of your original or refinanced investment property loan to cover private expenses, like buying a new car or renovating the home you live in, you can only claim an interest deduction for the portion relating to producing your rental income.”
He said that short-term rentals including holiday homes need to be included in tax calculations.
“We know that many people who own a short-term rental property, like a holiday home, rent it out for most of the year and use it occasionally themselves,” he said.
“You need to make sure you have the records to demonstrate you incurred expenses for your rental property and the extent they relate to producing rental income.
“If you’ve charged a mates rate, you can only claim for expenses up to the amount of income you’ve received.”
Mr Loh said if you made a mistake on your tax return, the best thing to do was own up.
“If you’ve made genuine mistakes, we encourage you or your registered tax agent to fix any errors or omissions in your tax return as soon as you can,” he said.