With 2019 tax time well underway, property investors are reminded of what they can and cannot claim – and what could land them in hot water with the Tax Office.
The ATO conducted audits of rental properties earlier this year, finding errors in about 90 per cent of tax returns lodged with rental claim deductions.
The Tax Office found:
- incorrect interest claims
- incorrect classification of capital works
- incorrect apportionment of holiday homes
This, combined with other individual errors, has created a $3.3 billion tax gap – meaning that sum of money is owed to the federal government in unpaid revenue.
“It’s clear from the ATO’s comments that they’ll be going in hard to narrow this $3.3 billion gap,” said BDO tax partner Marcus Leonard.
“Just because the investment property is used as a mortgage for a loan does not mean you can claim the interest as deductible if the loan is used for some other purpose, [for example], buying personal use assets or the family home,” he added.
“Repairs to the building and contents are generally deductible but not if they amount to an improvement to the building or items. However, improvements can usually be added to the CGT cost base or depreciation balance of the property or items,” he added.