The Australian Taxation Office (ATO) must be finding rental property schedules a lucrative source of additional revenue because, once again, it has made these schedules a hot-spot for 2023. The ATO reports that 90% of taxpayers are “getting their returns wrong” and 87% of all returns are prepared by tax agents. I reckon that, statistically, this is probably a little misleading. The ATO would be auditing a tiny sample of rental property schedules and it would be selecting schedules which have deductions much higher than average or income much lower than average. It is credible that these high-risk schedules might have high rates of “error”, but this would not extrapolate to the entire population of rental property schedules.
Nevertheless, it is important to know the rules. The ATO publication “Rental properties 2023” explains how to treat more than 230 residential rental property items. It is clear and comprehensive.
This year the ATO will target interest deductions (among other things). Many taxpayers top up their rental property loans for private purposes and some then continue to claim all the interest on the loan. Of course, the interest deduction should be reduced by the amount of interest attributable to the private use of the loan. The ATO is now acquiring residential investment property data from financial institutions.
In the case of joint ownership, interest deductions must be apportioned according to the ownership shares on the title deeds. If one of the owners pays all the interest, he or she cannot claim the full deduction.
The ATO has recently implemented data matching programs for residential investment property loans. This year the ATO expects to gather rental property data related to $1.7 million individuals.
The distinction between repairs and capital works is important. Repairs can be deducted outright. Additions, improvements and plant and equipment are usually deductible over a period of years.
When in doubt, refer to the guide or contact us.
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