ATO Doubles Rental Deduction Audits
In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billion in rental deductions, and the ATO thinks that is entirely too much. They also estimate that one in ten rental deductions contain errors - so they're planning to double the amount of audits in response.
4,500 audits of rental property deductions will be undertaken this year with the 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.
Deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim. In one case exposed by the ATO, a taxpayer had to pay back $12,000 in claims for deductions against a holiday home that was not genuinely available for rent and was blocked out during the holiday season.
In another, a taxpayer paid back $5,500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.
ATO assistant commissioner Adam Kendrick said some taxpayers were abusing the system, and the ATO considered they were "high risk" because they either overclaimed deductions or did not declare income at all.
He said the ATO was also concerned that occasional income earned through sharing economy platforms, such as Airbnb, was not being declared.
To combat this, the ATO is also improving its data matching, and is currently working with state revenue agencies, the real estate sector and sharing economy platforms to get more detailed information about rentals.
In the very near future the ATO plans to use property management reports prepared by real estate agents to pre-fill tax returns using
information such as council rates and management fees.
If you're concerned or unsure about your rental property deductions, we recommend you get in touch with your tax agent.