If so, be mindful that you are one of the A.T.O.’s audit targets this year.
The A.T.O. claim that 90% of landlords get their income tax returns wrong.
Common errors to be aware of include:
1. Rental Income. The ATO is concerned that the rent received declared in this year’s tax return will be ‘cut and pasted’ from last year’s income tax return when, in fact, the market is saying that overall rents have increased this year.
2. Interest expense. Whilst interest on loans has generally increased during the year, you can only claim the interest portion of the loan, not the total of the principal and interest mortgage repayments.
3. Repairs and maintenance. Generally, repairs and maintenance are expenses or costs that do not improve the condition of an asset or replace an asset but restore the asset to the condition it was in before the repair was necessary.
For example:
1. Lawn mowing and hedging are repairs, but landscaping or redesigning the backyard is not.
2. Replacing or painting some of the doors on the kitchen cabinets is a repair, but replacing the kitchen is not.
3. Replacing timber panels on the side fence is a repair, but replacing the entire fence is not.
4. Receipts. Note that you have a tax obligation to retain your receipts for a period of 5 years. The onus of proof is on the taxpayer.
The ATO imposes penalties for false and misleading statements or taking a position that is not reasonably arguable. These penalties can be up to 70% of the difference in tax between the tax liability lodged by the taxpayer compared to the tax liability assessed by the ATO.
If in doubt, we recommend you seek professional advice before lodging your return, as the ATO considers ‘ignorance of the law is no excuse’.
Should you require further information about taxation connected with investment properties please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation-free appointment.
The information in this document does not consider your personal objectives, financial situation or needs, so you should consider its appropriateness regarding these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision, and it is recommended that you seek assistance from your financial adviser.