ATO Warning

The 14 million Australians who are expected to soon lodge their 2019/2020 tax return have been warned by the Australian Tax Office (ATO) they will closely monitor tax returns involving unsubstantiated work-related expenses and rental deductions.

This warning related to rental properties will have a major impact on many Australians lodging their tax returns due to the high number of people who own investment properties.

The ATO estimates that a total of 2,097,392 Australians owns 1 or more investment properties which means that 8.7% of the Australian population can classify themselves as property investors,

Penalties imposed by the ATO can be financially very severe so it important that property investors minimise the risk of errors when lodging their tax returns.

Previous audits of rental expenses by the ATO have found the following three common errors made by taxpayers lodging their tax return:

  • Failure to undertake a physical inspection of the investment property when preparing a tax depreciation report.
  • Claiming rental deductions for properties not genuinely available for rent.
  • Incorrectly claiming deductions for properties only available for rent part of the year such as a holiday home,

Property investors should use the services of a professional tax accountant to help minimize mistakes when lodging their tax claim as the penalties for wrongly claiming tax deductions can be very high.

They should also use other professional services such as engaging the services of a quantity surveyor company that is compliant with ATO guidelines.

For example, it is critical that the quantity surveyor company undertakes an onsite inspection of the investment property when preparing a tax depreciation report. This report is a 'once-off' and will outline the number of tax benefits you can claim on an annual basis. Anyone considering employing a tax depreciation company should ensure that they are a member of the Australian Institute of Quantity Surveyors (AIQS). DEPPRO is a long-standing member of AIQS. Unfortunately, a growing number of tax deprecation companies are not undertaking a physical inspection of properties to cut costs and this failure could result in serious problems for their clients if they are audited.

Obtaining a tax depreciation report that is compliant with ATO guidelines is a small price to be paid that will give investors peace of mind while at the same time deliver a significant cash flow boost that can be as much as 60% of the purchase price of the investment property.