Property investors will attract closer scrutiny from the Australian Taxation Office after audits of the tax returns of 300 investors revealed errors.
More than 2.1 million Australian taxpayers declare rental income to the Tax Office each year, but a check of returns has unearthed widespread mistakes.
“A lot of people are getting things a little bit wrong,” Tax Office commissioner Chris Jordan told The Tax Institute’s national convention in Hobart recently.
Jordan says property investors are now his “next focus”, following a successful crackdown on inappropriate work-related expenses, which has yielded $600 million in extra tax revenue. Property owners can now expect to receive the same attention from the Tax Office.
“Our next focus is rental income and deductions,” Jordan says, revealing the targeted audits had unearthed errors by property investors.
“We’re seeing incorrect interest claims for the entire investment loan where it has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.”
Property owners declare about $44 billion in rental income and $47 billion in costs associated with property ownership – including interest on loans – meaning the nation’s landlords are, on average, “negatively geared”, with expenses exceeding rental income. These rental losses can then be used to reduce tax payable on other income.
“And when you consider that rentals include over 2.1 million taxpayers claiming $47.4 billion in deductions, against $44.1 billion in reported income, you can get a sense of the potential revenue at risk,” Jordan says.