One national network of tax advisers is warning that property investors have been caught out by random audits for avoidable mistakes in their claims and record keeping this tax time.
When it comes to investment properties, the common mistakes that taxpayers make are as follows, according to H&R Block:
· Not declaring rental income at all (quite common in the context of Airbnb type arrangements where people simply don’t understand that the income they receive is taxable.)
· Incorrectly claiming interest costs on the family home as well as their rental property.
· Incorrectly apportioning 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.
· Claiming deductions in relation to a rental property when it is not rented or genuinely available for rent.
· In the context of holiday homes, trying to claim deductions for periods where the owner (or relatives/friends staying for free) is using it.
· Incorrectly claiming costs to repair damage and defects existing at the time of purchase of the property or the costs of renovating the property. These costs are generally capital in nature and either need to be added to the cost for CGT purposes or depreciated over time.
"The key tip 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. Too many property owners fail to keep these sorts of records, which can be a problem if the ATO audits their tax return," said H&R Block's national tax director, Mark Chapman.
"It's worth pointing out also that recent random audits done by the ATO revealed errors in 90% of the tax returns checked that had property claims. As a result, the ATO is doubling its audit program for rental properties this year!" he added.