Over 1.8 million people – or about 8% of the Australian population – own an investment property according to ATO figures and with interest rates at a record low, all the evidence suggests that the current boom in property investment isn’t about to end any time soon.

This boom in investment property ownership throws up particular challenges for the ATO, both in making sure that they know exactly who owns what and also in making sure that taxpayers aren’t rorting the system. All the evidence suggests that the ATO is gearing up to put property investors under the compliance spotlight this year.

Interest expense claims

At the forefront of the campaign, the ATO has announced it will be paying close attention to excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property.

They will also be looking at the incorrect apportionment of rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than jointly.

Holiday homes not genuinely available for rent

In addition, the ATO will be looking at holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed. This is particularly important for holiday homes, where the ATO regularly finds evidence of home-owners claiming deductions for their holiday pad on the grounds that it is being rented out, when in reality the only people using it are the owners, their family and friends, often rent-free.

Newly purchased rental properties

Finally, the ATO will be keeping a close eye on incorrect claims for newly purchased rental properties. The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years. Expect to see the ATO checking such claims and pushing back against claims which don’t stack up.

Don’t forget, the ATO has access to numerous sources of third party data including access to popular holiday rental listing sites, so it is relatively easy for them to establish whether a claim that a property was “available for rent” is correct.

The golden rule

The key tip from H&R Block is to ensure that property owners keep good records. The golden rule is; if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.

June 2016

Book a tax return appointment

To get the best advice possible on your investment property, find your nearest H&R Block office and book an appointment. We can help you lodge your tax return.

Book now

Book a tax return appointment

To get the best advice possible on your investment property, find your nearest H&R Block office and book an appointment. We can help you lodge your tax return.

Book now