‘Think again’ before fudging property reporting, ATO warns investors

The ATO’s assistant commissioner, Tim Loh, said the ATO is seeing errors made where sellers are incorrectly claiming the full main residence exemption when parting with a property.

This could be because they have leveraged the property on short-stay accommodation sites, or even put a residence on the long-term market while they joined the throngs of Aussies who sought out a change of lifestyle during recent waves of domestic migration.

And many people who brought their businesses onsite during COVID-19 – or started up something new with the added downtime – may not have realised that substantially changed the purpose of their home from a tax perspective.

“Generally, your main residence (your home) is exempt from CGT, but if you’ve used it to produce income, such as renting out all or part of it, including through the sharing economy, like through Airbnb or Stayz, or running a business from home, then you may have to pay CGT,” Mr Loh explained.

CGT is not a separate tax, but rather is counted as part of income and therefore taxed at an individual’s marginal income tax rate. It comes into effect when assets are disposed of and also relates to things like shares and crypto assets.

For investors to ensure they’re meeting their obligations and paying the right amount of tax, they need to calculate a capital gain or capital loss for each asset they have disposed of, then reduce their total capital gains with any capital losses before applying any eligible discounts or exemptions.

Equally important as reporting gains, Mr Loh reminded that capital losses should be tracked year to year, and can come in handy to offset tax in the future.

“It’s important to also include capital losses on your tax return – by including losses in the year they occur, they can be used to reduce capital gains in the current or future years,” he said.

“But, you can’t offset capital losses against other income like salary or wages,” Mr Loh added.

The tax expert noted that there are a number of rules around capital gains that can help people ensure they are not paying more than is due.

“If you’re an Australian resident for tax purposes and you’ve kept your asset for 12 months or more before disposing of it, you can reduce your capital gain by 50 per cent.”

“If you jointly owned an asset, remember to apportion your gain or loss based on your ownership percentage,” Mr Loh said.

Because capital gains are payable on rental properties depending on the length of time they were rented, the ATO stressed that it’s important to keep accurate records in relation to income-producing periods of property ownership.

“Records are key, and will help you calculate the correct capital gain to ensure you are meeting your obligations,” Mr Loh said.

The ATO reported that many of the mistakes are being caught out due to its data sharing agreements with other government agencies and organisations.

For example, the ATO receives data from state and territory property titles offices and revenue agencies, crypto asset exchanges and share registries.

“If you think you can slide under the radar and avoid reporting a capital gain, think again,” Mr Loh warned.