Taxation and Advice

The ATO is targeting those who rent out their property for a few weeks during the year but claim a full year’s worth of tax deductions.

The tax office will be paying close attention to rental property owners, especially those who own a holiday home, who incorrectly claim for initial repairs to recently acquired rental properties.

Last year, the ATO sent out letters across Australia reminding people to only claim deductions that they are entitled to for the periods that their rental property was rented out or genuinely available for rent.

While the majority of taxpayers who received those letters reduced their claims, a key concern that remains is people making claims for expenses when a property is not genuinely available for rent.

With the ATO taking a more broad approach in monitoring rental deductions, now may be the perfect opportunity for holiday home investors to review the rules surrounding holiday home tax deductions to ensure that they can address any risks or issues in a timely manner.

Areas where rental property owners are incorrectly claiming deductions include:

• Claiming excessive deductions
• Partners splitting income and deductions
• Repairs or maintenance claims
• Claiming for interest deductions

Homeowners should be aware that it is not just holiday homes that are under focus by the ATO. The office will also commence addressing rental property owners who incorrectly claim deductions as well.

A common mistake that has risen among rental property owners is claiming for deductions for initial repairs to rectify damage, defects or deterioration that existed at the time of purchasing the property.
Taxpayers are not entitled to claim a deduction for any repairs made to their rental property for issues that existed when they purchased it, even if the repairs were carried out to make the property suitable for rent.

Instead, the cost of these repairs is used to work out any profit or capital gain, when the property is sold.