Tax season is approaching once again, and while property investors usually rejoice in the form of a substantial tax credit, accountants find themselves overwhelmed with work. However, it’s crucial to stay on the good side of the AustralianTaxation Office (ATO) by keeping a few things in mind. The ATO has intensified its efforts to combat incorrect tax returns from rental property owners, estimating that 90% of landlords either under-report their income or over-claim deductions, resulting ina loss of $1.3 billion for the government. On average, this amounts to $400 per investment property.
To crack down on these discrepancies, the ATO is actively gathering data from lenders and property managers to verify property usage, income, and expenses. By cross-referencing this data with their own records, the ATO aims to ensure accurate tax return filings.
There are three main areas of focus for the ATO:
Misuse of investment loans: It is impermissible to use loan funds for personal expenses such as purchasing luxury cars or paying school fees.Misclassification of repair costs: While repair costs can be offset against rental income, expenses related to capital works cannot be claimed in the same manner.Claiming expenses for personal use: Property owners who utilise their properties for personal reasons, such as Airbnb hosts on vacation, cannot claim expenses for the days when the property is not generating income.
The ATO emphasises the importance of landlords being cautious when claiming deductions. Any errors discovered by the ATO can lead to penalties of up to 75% of the tax shortfall.
To avoid mistakes on tax returns, landlords should consider the following tips:
Maintain accurate records of all rental property income and expenses.Understand the distinction between repair costs and capital works.Only claim deductions for the period when the property is actively generating income.Seek professional advice if uncertain about the eligibility of a deduction.
The ATO’s crackdown serves as a reminder to all rental property owners to exercise care when claiming deductions. By adhering to the provided tips, landlords can ensure their tax returns are filed accurately, mitigating the risk of penalties.
Additionally, it’s important to bear in mind the following:
The ATO may request evidence to support claimed deductions, including receipts, invoices, or bank statements.In the event of an ATO audit, landlords must furnish all relevant documentation.Failure to comply with ATO requirements can result in significant penalties, underscoring the need for meticulous adherence to guidelines.
By following these suggestions, landlords can confidently file their tax returns correctly and minimise the likelihood of penalties. Happy Investing !!
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