Rental income and expenses has been a strong focus for a few years, because of the large number of new entrants and the wide range of common mistakes being made in claims.
Figures recently released indicate that over 1.5 million people claimed more than $24 billion in rental deductions in their tax returns last year. Almost 170,000 of these people claimed for the first time.
So far this year the Tax Office have completed over 6,800 reviews and audits of rental property claims. As of the middle of May they had identified $8.6 million in total revenue owing, with $5.6 million collected.
Some of the most common mistakes were:
- claiming deductions for rental properties not genuinely available for rent
- not apportioning expense claims where the property is only available for rent part of the year, such as a holiday home
- overstating interest claims on loans taken out to purchase, renovate or maintain a rental property, and
- claiming the full cost of a visit to inspect a property when it is combined with a private purpose, like a holiday.
The ATO has stated that they will soon be writing to last years new entrants with information on the dos and don’ts and to let them know where to get more information. They will also be writing to some people who have been in the investment property market longer. They have been selected because they have some of the following characteristics:
- unusually high claims for rental deductions
- low rental income in relation to rental deductions
- high claims for interest expenses, and
- high claims for borrowing expenses.
If you receive a letter from the ATO in relation to rental property deductions, check carefully all the information you provide in your tax return as you can be assured the tax office will be carefully checking it too!
Click below to hear what Assistant Tax Commissioner Megan Yong says about claiming rental property deductions in your 2007-08 tax return.
Article by Christie Lewis
Christie is Practice Manager at Alan Lewis Accountants . Besides accounting, her passion is for all things small business (and blogging, of course). You can contact Christie directly at christie@lewistaxation.com.au.
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