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Tax Traps For Property Investors

Updated: Sep 4, 2022

The Australian Taxation Office (ATO) has issued a media release to property investors outlining their focus on red flags that can lead to a tax audit.

Property investors claimed $38 billon in deductions just in the 2019-20 tax year and based on the tax returns selected for audit, more than 70% were required to be adjusted. Based on this finding, Assistant Commissioner Tim Loh issuer a warning to investors that there will be consequences for any rental property investors.

While it is understandable that COVID may have impacted rental incomes, the ATO is dedicating significant resources in obtaining data from multiple sharing platforms, property managers, community forum posts and rental bond authorities. Additionally, they will be using analytics to look at bank transactions that appear to have the character of rental income. With regards to unusual deductions or high deductions, ATO has wide data analytics capabilities that can benchmark data on thousands of similar properties and outline claims that seem unusually high.

Extax Rental Property Investors Australia
ATO warnings for Rental Property Investors

The ATO has noticed an overall relaxed and inadequate approach to record keeping that are not addressed by many tax agents. Hence for 2021, the following areas of special interest will be scrutinised:

  • inadequate substantiation, including failing to keep receipts, failing to keep adequate records and workings behind deductions claimed.

  • immediate claims for lump sum amounts that should be depreciated over a number of years.

  • incorrect claims on interest and borrowing costs, including personal loans, redraws of loans for non-taxable purposes, refinancing multiple debts and debt consolidations

  • unreasonable repairs and maintenance, travel for property and ancillary costs such as wealth planning and property investment strategies that are of a capital nature.

Added to the complexity are situations where non-residents have returned to Australia, or are stuck in Australia due travel restrictions and have changed the use of their properties for part of the year.

Should you have any questions on how the above applies to your situation, please contact us.

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