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Investors who rent their property out on a short-term basis have been warned that the ATO is keeping a close eye on the veracity of any deductions made during this tax season.
The ATO has announced that it will be “paying particular attention to excessive deductions” made by investors who hold properties in popular holiday destinations.
The warning comes in the midst of the tax reporting season.
The director of tax communications at accountancy firm H&R Block, Mark Chapman, warned investors to take care to keep accurate records of the periods their holiday home is rented out for, and the amount of income received each time.
“Periods of personal use can’t be claimed and accurate records need to be kept for when it has been rented out over the last year. Be careful of claiming deductions when nominal rent has been charged for friends and family staying at the property,” he said.
Mr Chapman explained that the ATO now has the means to verify claims regarding the period of time a property has been leased out for.
“The ATO now has access to numerous sources of third-party data, including access to popular rental listing sites for both long-term and holiday rentals, so it is relatively easy for them to establish whether a claim that a property was ‘available for rent’ is correct,” he said.
He also highlighted the importance of correctly claiming the costs of repairs to damage and defects in a holiday property, reminding investors that these claims had to be deducted over a period of several years.
Couples who have 50:50 ownership of an investment property, but choose to split deductions and income to increase the tax benefit received by the higher income earner, are also in the ATO’s sights, according to H&R Block.