The Australian Tax Office is strongly recommending that rental property owners closely examine the information on its website to make sure they are really clear about their obligations to get their tax claims right in 2016.
Assistant Commissioner Graham Whyte said the ATO would be paying close attention to excessive interest expense claims and incorrect apportionment of rental income and expenses between owners.
We are also looking at holiday homes that are not genuinely available for rent and incorrect claims for newly purchased rental properties. If you are claiming deductions for your rental property, be sure to include all your rental income and make sure that your property was genuinely available for rent when the expense was incurred.
You must also make sure to apportion any deductions to take any private use into account, and you must have records for the claims you make. The ATO’s ability to identify incorrect rental property claims is becoming more sophisticated due to enhancements in technology and the extensive use of data.”
A holiday home case study
John had a newly purchased rental property that had not returned any rental income. He told the ATO that the property was occasionally advertised on community noticeboards and websites.
John was unable to prove there was a genuine arrangement in which he actively sought tenants, or had taken sufficient steps to genuinely advertise the property for rent.
A rental loss of almost $60,000 was disallowed and penalties were applied.
A high rental interest case study
Rental property owner Sarah reported high rental interest claims and was required to provide bank statements as evidence to the ATO. The statements showed borrowings well in excess of the purchase price of the rental property.
The interest charges relating to the private part of the loan were disallowed. Sarah was required to pay more than $15,000 back to the ATO.
A case study on incorrect claims for a newly purchased rental property
Nancy recently purchased a rental property and had her tax return amended by the ATO to remove deductions for repairs, capital works and incorrectly apportioned borrowing expenses.
Nancy had inappropriately claimed a deduction for repairs to defects present in a newly purchased property and the capital works and borrowing expenses should have been spread over several years. Nancy also provided false receipts for property management fees undertaken by a family member.
Nancy was required to pay more than $57,000 back to the ATO as well as over $10,000 in penalties for making a false statement in her tax return.
Case study on the importance of record keeping for tax returns
Ethan was required to provide evidence to the ATO to show that their property was genuinely rented at market rates. He was unable to provide any documentation to show that a rental arrangement was in place.
All rental income and expenses were removed from his tax return and he received a tax bill of more than $12,000.
Case study on apportioning expenses between joint owners of a property
A rental property claim was investigated by the ATO where the rental expenses had not been apportioned correctly. The property was jointly owned by a couple but the higher income earner claimed the larger proportion of the expenses.
The expenses were adjusted to reflect the ownership interest and the higher earner had to pay back more than $8,000 in tax.
