Landlords and their accountants have been forewarned of added scrutiny by the ATO regarding rental property deductions. The ATO appears to have made the issue a priority this year, alongside CGT and work-related expenses for work-from-home employees.
ATO assistant commissioner, Tim Loh, said that the authority had identified common mistakes during lodgement and would be offering support to taxpayers and registered tax agents to ensure better accuracy. He anticipates more people needing to manage their tax debts and fewer taxpayers receiving refunds or smaller refunds as a result
Loh confirmed that as many as nine out of 10 landlords were making mistakes when preparing their returns. Some of the common mistakes made include omitting rental income, making claims for improvements on private properties, and overclaiming on expenses. He is urging landlords and their tax agents to be especially careful when lodging returns and ensure that they review their records.
To further boost the ATO’s crackdown on rental property compliance, the government allocated an extra $89.6 million in its budget to the authority’s Personal Income Tax Compliance Program. When making the allocation, reference was made to deductions relating to short-term rental properties. This boost in funding is expected to increase receipts by $474.9 million and payments by $90.8 million over the coming five years.
The ATO reported a tax gap of $9 billion in the 2019 to 2020 fiscal year. Rental expenses were estimated to be contributing $1.3 billion to the gap. The ATO is thus determined to ensure better compliance going forward by shining the spotlight on landlords and their registered tax agents.
HLB Mann Judd tax consulting partner, Peter Bembrick, said that there was a need for accountants to ensure clients were across CGT for both rental properties and holiday homes to meet the ATO’s stricter compliance crackdown. He highlighted a need for a clear understanding as to how to apply CGT, even for homes that may have previously been holiday homes or investment properties but had since become primary residencies.
Loh also noted that while primary residencies were generally exempt from CGT, it was important to retain any records from when the residence may have been used to produce income as it may have tax implications when selling the property. He said that income-generating activities like running a business from home and renting out a part of the home may cause CGT to apply. He also warned taxpayers against thinking that selling an asset for gain and not declaring would go unnoticed.
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