Rental Tax Deductions Will Be Heavily Audited This Financial Year

The Australian Tax Office (ATO) has announced they will be doubling the number of audits scrutinising rental deductions for the 2018-19 financial year.

According to the ATO, in the 2017–18 financial year, more than $47 billion in deductions were made by over 2.2 million Australians. As a result, Assistant Commissioner Gavin Siebert has said that this year rental deductions will be a top priority for auditing. 

The Assistant Commissioner highlighted that the ATO is concerned about the level of non-compliance when it comes to claiming rental deductions, saying that "A random sample of returns with rental deductions found that nine out of 10 contained an error". ​

What Rental Tax Deductions Will Be Targeted by the ATO This Year?

​Assistant Commissioner Siebert has said that the ATO will more than double the number of in-depth audits completed this year to 4,500 - with a specific focus on:

• over-claimed interest
• capital works claimed as repairs
• incorrect apportionment of expenses for holiday homes let out to others, and
• omitted income from accommodation sharing

How Does The ATO Audit Suspicious Rental Deduction Claims?

​"Once our auditors begin, they may search through data including utilities, tolls, social media and other online content to determine whether the taxpayer was entitled to claims they've made", said Assistant Commissioner Siebert. 

To assist with auditing, the ATO states that they also use "a range of third party information including data from financial institutions, property transactions and rental bonds from all states and territories, and online accommodation booking platforms, in combination with sophisticated analytics to scrutinise every tax return".

Recently, the Government increased funding to the ATO to improve its abilities to audit rental properties. 

What Happens If A False Claim Is Made Relating To Tax Deductions On A Rental Property?

​No penalties will apply for taxpayers who amend their returns due to genuine mistakes, however deliberate attempts to over-claim can attract penalties of up to 75% of the claim.

Last year, the ATO audited more than 1,500 taxpayers with rental claims and applied penalties totalling $1.3 million.

In one instance cited by the ATO, a taxpayer was penalised over $12,000 for over-claiming deductions for their holiday home when it was not made genuinely available for rent.

Another referenced example is a taxpayer being required to repay $5,500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.

In summary, Assistant Commissioner Siebert says "This tax time, our message to taxpayers is clear. If you are renting out a room or a property, any money you earn must be declared as income and any deductions you claim may need to be apportioned for private use".

Investors - we have been warned!

Contact Us