“People are claiming expenses for periods when they’re actually using their house for themselves, or their friends, or family are using the house. That’s not OK. So it really is about making sure that you’re only claiming the parts that are associated with any rent.”
Kasapidis said if investors received some form of relief in the form of grants or state government support, that is also taxable and should be declared as income as a general rule.
Property Tax Specialists founder and principal adviser Shukri Barbara said investors should also be wary of over claiming when they lease their property out to friends or family at below-market rents.
“Some people rent to relatives at lower than market value, and they want to claim the interest. That’s not acceptable if you claim less than market rent, then you can only claim up to the amount of rental income you receive,” Barbara said.
He said investors should also make sure to not mix up claims between repairs, which are deductible, and improvements, which claim depreciation over time.
“For example, if you’re fixing a paling on a fence, it’s a repair. But if you’re replacing the entire fence, then you claim depreciation on the improvement.
“A repair is something you can fix up, and you can get a full deduction for the service you paid for. But if it’s going towards a major item replacement such as roofs then it’s going to part of the improvement. Once you use new materials on a big job that is improvement.”
Barbara warned investors to be meticulous with their record-keeping as the ATO builds on its auditing capabilities.
“Each year they move a bit forward with the technical ability to chase up stuff. If the ATO calls you up and asks you a question, they already have the answer. Make sure your paperwork and your records match up with what you’re going to claim. The tax office already has all the answers.”
Barbara also said the ATO checks short-term letting platforms to confirm if they are genuinely rented out at reasonable rates, rather than inflated prices that leave the property vacant.
The Real Estate Institute of Australia president Hayden Groves said investors should be in good stead if their properties are managed by agents.
“Our members are real estate agents, and they run precise systems within their own agency to account for every dollar and cent that comes through,” Groves said.
Groves said that the ATO was paying particular attention to holiday rental incomes, warning investors to be vigilant and not to overstate deductions.