A TOUGHER tax time is looming for Australia’s 2.1 million real estate investors amid increased scrutiny and harsh rule changes.
A new government ban on deductions for landlords’ travel-related expenses is causing the most angst, while the axing of many depreciation deductions for investors who bought second-hand properties since May last year could cost investors thousands of dollars for each property.
However, there is still potential for lucrative tax deductions for those who prepay expenses before June 30, as long as they only claim what they should, because the Australian Taxation Office has warned it is watching property closely.
H & R Block director of tax communications Mark Chapman said the ATO would focus on:
• Excessive claims for interest expenses, such as trying to claim interest on the family home as well as investments;
• Incorrect claims for new property purchases, and;
• Holiday homes that were not genuinely available to rent and were mainly used by their owners, family and friends.
TAX TIME: Give charities a sporting chance
“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 to rent is correct,” Mr Chapman said.
He said many property investors felt aggrieved by the blanket ban on travel-related deductions.
This rule change was announced last year to combat rorts by some investors who claimed big deductions for visiting investment properties in sunny holiday locations, but it affects all landlords.
“The vast majority of people are those driving 5-10km across town because the tenant complained there was a leaking tap or the toilet was blocked. They’re the ones affected by this,” Mr Chapman said. Landlords with short-term holiday rental properties requiring several visits a week would also suffer, he said.
“The ATO is really looking very closely at property depreciation claims, and the changes are quite complicated, so it’s worthwhile getting some professional help if you might be affected.”
Terri Scheer Insurance executive manager Carolyn Parrella said despite the changes, there were many other legitimate expenses that landlords often overlooked, including body corporate fees, home office expenses, landlord insurance and property managers.
Ms Parrella said the ATO had warned that incorrect claims this year would not go unnoticed.
“Even the most fastidious landlords could come under scrutiny from the ATO for oversights in their bookkeeping,” she said.
“The ATO will also be alert to unreasonable conditions placed on prospective renters, rental rates set above market rates, and failing to sufficiently advertise rental properties, as these factors can impact a tax claim’s eligibility.”