This article is from the Australian Property Journal archive
ONE and a half million investors who own rental properties are under the greater scrutiny from the Australian Tax Office as rental losses continue to soar, according to CPA Australia.
CPA Australia’s senior tax counsel Mark Morris said the ATO plans to examine 6,000 at risk cases where material amounts have been claimed, and to contact tax agents whose clients have unusual patterns of rental claims.
The ATO is carefully scrutinising what rental property owners are claiming in their annual tax returns, so taxpayers need to understand exactly what they can claim.
“It is critical that rental property owners have their books in order when they consult their tax agent at the end of the financial year and have up-to-date records and copies of all relevant receipts for the year,” he added.
Last year the ATO sent out 65,000 review letters and completed 6,700 reviews or audits which raised additional tax revenue of $8.4 million.
Morris said investors must also be sure that they only claim a deduction for certain expenses they incur for the period the property is rented or is available for rent.
“Rental property owners can generally claim expenses in the year they were incurred such as interest, body corporate fees, property agent’s commission, council rates and repairs and maintenance,” Morris said. “During 2005/06 rental property expenses outpaced income with recorded expenses increasing by 11% as opposed to 9% growth in income,”
Landlords also need to be aware that whilst certain costs can be claimed as a deduction in the year incurred, other expenses must be claimed over a number of income years such as borrowing expenses.
The cost of rental assets such as furniture and fittings must also be depreciated over their effective lives, and deductions for the costs of constructing certain rental premises and other capital works must be claimed over their statutory lives.
“Expenses not actually incurred by the taxpayer, such as water or electricity charges borne by the tenants, and expenses that are not related to the rental of a property, cannot be claimed,” Morris said.
The ATO audits will also focus on incorrect apportionment of interest claims, excess deductions for capital works, non-deductible initial repairs and borrowing costs claimed as fully deductible in the year they are paid.
Australian Property Journal
