ATO Focuses on Landlords
The Australian Tax Office has warned it will be cracking down on landlords who incorrectly claim deductions in their tax returns.
About 1.7 million property owners use negative gearing - where the income generated by rental payments does not cover the interest on the home loan - to claim the losses as a tax offset.
ATO says about 100,000 rental property owners who may have incorrectly claimed tax deductions will be contacted this year.
A number of deductions such as interest paid on a loan to purchase a rental property or to purchase land to build a rental property are able to be claimed by landlords immediately. Other expenses incurred during the course of owning a property, including the cost of depreciating assets, structural improvements and most borrowing costs, can also be claimed.
However, landlords are not entitled to make the following deductions:
deductions for rental properties not genuinely available for rent;
interest on a loan used to buy a home that does not produce income or on a private home;
borrowing expenses or interest on the portion of the loan used for private purposes, like buying a new car;
travel expenses when the main purpose of the trip is a personal holiday;
stamp duty charged by a state/territory government on the transfer of the property title or leasehold interest;
insurance premiums for policies that will pay off the loan in the case of death, disability or unemployment; and
solicitor fees for the purchase of the property and the preparation of loan documents.
Depreciation is the most commonly overlooked tax deduction, according to quantity surveyor Bradley Beer of BMT Tax Depreciation. Interest, accounting fees, body corporate fees, repairs and maintenance, mortgage insurance, travel and rates are among the other property expenses that can also be claimed.
However, Beer says investors with holiday homes aren't able to claim expenses for use of the property by friends and family. Taxpayers who use a holiday investment privately will have to pro-rata all the expenses for the periods they, their family and friends have rented the property at a discounted rate.