ATO cracking down on investment property deductions

Posted By Celine Jin

Just in time for the end of the financial year, the Australian Taxation Office (ATO) announced it would be sending letters to an increasing number of Australians who need to explain investment property deductions in their tax returns. This increased scrutiny of tax returns for Australians who make deductions for an investment property comes after significant growth in the amount of deductions Australians have been claiming each financial year.

In the 2018/19 financial year, for example, 2.2 million people claimed over $47 billion of tax deductions. A large portion of these deductions came from work-related expenses and deductions for rental properties. As a result of the significant increases in deductions, the ATO announced it would double the number of audits on Australian taxpayers.

For taxpayers who are audited, and a genuine mistake is detected, there are no penalties. The taxpayer will just need to adjust their accounts with the ATO and pay the likely bill owing. For taxpayers who are found to be deliberately trying to over-claim deductions, penalties of up to 75% of the amounts claimed can be applied.

Specific scenarios that the ATO will be looking out for include incorrect recording of rental income and expenses. This is particularly relevant on jointly-owned properties. For example, if two people own an investment property and all of the deductions are claimed by the higher income earner, this will raise suspicions with the ATO.

Holiday homes are also a focus for the ATO. In particular, the ATO are on the lookout for taxpayers who claim deductions for holiday homes that aren’t genuinely available for holiday letting. The agency will also be checking to ensure deductions are only claimed for the periods when holiday homes are rented to visitors, and not when the owners are using the property for their personal use.

“We expect to more than double the number of in-depth audits we conduct this year to 4500, with a specific focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others and omitted income from accommodation sharing,” the ATO’s Assistant Commissioner explained in a statement.

With the ATO cracking down on false deductions, it’s more important than ever to make sure you’re keeping appropriate records to ensure tax times goes smoothly for you.

Celine Jin

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"Welcome to our real estate blog! I'm Celine Jin of BOLD, with 15+ years in Melbourne's property market. Here, we share insights, tips, and market updates to help you make informed real estate decisions. Catering to investors and first-time homebuyers alike, we're excited to have you join us. Reach out with any questions, and let's navigate the property world together!"

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