Rental Properties - 2008 Audit Target

At a National Institute of Accountants conference in June 2008, the ATO made the following comments on rental properties and their 2008 audit activities:

"Rental income and expenses has been a strong focus for a few years, because of the large number of new entrants and the wide range of common mistakes being made in claims.

We do have a booklet – we think of it as a bit of ‘a renovator’s delight’ with the creative title – Rental properties! It provides straightforward, easy to understand guidance on tax obligations for property investors.

Over 1.5 million people claimed more than $24 billion in rental deductions in their tax returns last year, almost 170,000 people claimed for the first time.

We will soon be writing to last years new entrants with information on the dos and don’ts and to let them know where to get more information.

We’ll also be writing to some people who have been in the investment property market longer. They have been selected because they have some of the following characteristics:

a unusually high claims for rental deductions
a low rental income in relation to rental deductions
a high claims for interest expenses, and
a high claims for borrowing expenses.

So far this year we have completed over 6,800 reviews and audits of rental property claims. As of the middle of May we have identified $8.6 million in total revenue owing, with $5.6 million collected.

Some of the most common mistakes we see are:

a claiming deductions for rental properties not genuinely available for rent
a not apportioning expense claims where the property is only available for rent part of the year, such as a holiday home
a overstating interest claims on loans taken out to purchase, renovate or maintain a rental property, and
a claiming the full cost of a visit to inspect a property when it is combined with a private purpose, like a holiday."

We started seeing letters a few years ago from the ATO directed to new entrants to the rental property market. My advice to investors who receive these letters is "Your tax return has been prepared in accordance with legislation, regulations and expectations. You do not need to be alarmed about the letter."

While the ATO has pointed out "common mistakes" resulting in lost revenue to them, My Tax Zone has pointed out "common mistakes" property investors make resulting in lost legitimate tax deductions.

Property investors can access our full FREE commentary on maximising investment propety refunds here >>> Taxation and investment Properties Explained.

By D Maynard
CEO My Tax Zone

Copyright 2014. My Tax Zone.