Current as of January 2018
We have discussed this area before but thought it best to bring it up again due to the recent targeting of rental property owners by the ATO to ensure they are doing the right thing.
So what do you have to watch out for now in this regard? The following issues are being looked at closely by the ATO
- Are you renting the property out to family members or friends for below market rent? If there are some “mates rates” being charged, this will limit the amount of tax deductions you are able to claim for that period.
- The ATO is looking at tax returns where expenses for the full year have been claimed, but rent is only received for part of the year.
- Are you claiming expenses on a property also being used as your holiday home? What period are you claiming the expenses for? Are you claiming for a period where it is not rented but you are claiming it is “available for rent”? If that is the case then you will need to be able to prove it is available for rent and being clearly advertised in a way that is likely to lead to it being rented. In particular, setting the rent too high, or setting unreasonable rental conditions, so it is unlikely that anyone will rent it, will lead to close scrutiny by the ATO.
- Have you claimed repairs on the property? You will need to ensure that these repairs are not capital in character and are not initial repairs incurred soon after purchase of the property (in which case they could be seen as capital). The ATO has recently sent over 1000 letters to property owners who had potentially claimed “initial repairs”.
The ATO has an increasing ability to utilise third party data matching to confirm what has been claimed in your tax returns. This includes data matching with sites like Airbnb and Stayz and also comparing your claims against similar properties and reviewing advertising and property search engines to see what properties are being rented out. If you are doing the wrong thing you are now more likely to get found out!
The ATO targeting just reinforces the need for you to keep your tax affairs in order and only claim what is allowed when it comes to rental properties. If you are unsure how this might affect you don’t hesitate to contact your client manager.
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation.