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The Inland Revenue today announced its three ‘focus areas’ for this year, targeting landlords who are claiming expenses they are not entitled to.
Figures show 90 per cent of landlords are filing incorrect tax returns, the ATO said.
“We often see landlords making mistakes when it comes to deductions for repair and maintenance of rental properties, so we’re keeping a close eye on this,” said ATO Assistant Commissioner Rob Thomson.
“This year we are particularly focused on claims that may have been inflated to offset increases in rental income to get greater tax relief.”
The ATO said that landlords are not allowed to claim property improvements (as opposed to repairs) as immediate deductions.
“You can claim an immediate deduction for general repairs like replacing a damaged carpet or a broken window,” Thomson said.
These countries have the highest tax rates in the developed world
“But if you take out an old kitchen and put in a new and improved one, that is a capital improvement and is only deductible over time as capital works.
“We encourage rental property owners to review their documentation carefully before filing their return and take care to ensure they are claiming deductions correctly.”
The other two problem areas noted by the tax office are work-from-home expenses and do not include all income.
The latest error, Thomson said, is often the result of filing a return in early July instead of waiting until the end of the month or August, when much of the information is automatically filled in up front.
“We see a lot of errors in July when people forget to include interest from banks, dividend income, payments from other government agencies and private health insurers,” he said.
“By filing in early July, you double your chances of your tax return being flagged as incorrect by the ATO.”
While most of the wrong tax returns are mistakes, Thomson said some people knew exactly what they were doing when they claimed expenses they weren’t entitled to.
“These are the areas where people are most likely to make mistakes, and although these mistakes are often genuine, they are sometimes intentional,” he said.
“Take the time to get your return right.”
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