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Landlords at risk of tax errors if PM reports go unchecked: ATO
As rental-related claims remain under the ATO’s watch, landlords have been warned about multiple issues in property managers’ reports that could lead to tax return complications.
Landlords have been reminded to be diligent in ensuring their tax returns are accurate, after the Australian Taxation Office (ATO) identified multiple issues with property manager rental reports.
Recently, the ATO cautioned tax agents against relying solely on reports from property managers when preparing rental property schedules, seeing a number of issues with claims.
A spokesperson said that while a yearly statement from property managers was a good starting point, it should not be the only record that landlords depended on when filing their tax return.
“Check it against invoices, receipts, and other documents before lodging your return,” they told SPI.
They warned that if a statement was wrong or unclear, a rental property owner may claim too much, claim too little, or claim an expense in the wrong way.
“We know that mistakes in rental property schedules are common, and that a significant proportion of rental property schedules contain one or more errors.”
“Rental property owners are still responsible for what goes in their tax return, even if they use information from a property manager.”
One of the most common issues was when property managers grouped rental expenses under broad labels like “sundry” or “other”, failing to clarify what the money was spent on.
The ATO said this can make it difficult to know whether the expense can be claimed straight away, over time, or not claimed at all.
General labels can also make it difficult for owners to know whether an expense was included in the property manager statement or not.
“A property owner might inadvertently claim the same expense twice as a deduction: once according to the statement, and again as an expense based on the underlying invoice; or not claim the expense at all,” the ATO said.
Other issues have included capital expenses, such as initial repairs, being claimed straight away rather than over time, and expenses being grouped together without sufficient detail.
Additionally, it can be unclear as to whether an expense was claimed when it was billed or when it was paid, while costs incurred during the owner’s private use of the property may mistakenly be included.
To avoid errors, the ATO suggested that landlords ask questions if descriptions were unclear, especially general labels on expenses.
“Include all rental income, including from short-term rentals, overseas properties, and informal arrangements,” it said.
Additionally, they should double-check whether an expense was a repair, maintenance, improvement or capital in nature
The ATO also said landlords needed to adjust claims where a property was used privately, rented for only part of the year, or rented below market rates.
“Incorrect rental expense claims are a major contributor to the individuals not in business income tax gap, and they contributed an estimated $1.5 billion in 2022–23,” it said.
“Better information helps reduce mistakes and makes it easier for people to get their tax right the first time.”
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