Landlords take note: ATO to scrutinise rental property deductions

The Australian Tax Office (ATO) is looking to crack down on the legitimacy of rental property-related tax deductions submitted in individual 2015/2016 tax returns.

It’s important that landlords understand the difference between what constitutes an authentic claim and what does not.

In a press release issued on the ATO website, Assistant commissioner Graham Whyte says the ATO will focus on excessive interest expense claims and incorrect apportionment of rental income and expenses between owners.

If you're planning on claiming deductions for a rental property, you'll need to ensure all rental income has been included on your claims statement, deductions for private use has been apportioned, and that the property was genuinely available for rent.

According to the ATO website, you can claim a deduction for your related expenses for the period your property is rented or is available for rent including:

• management and maintenance costs, including interest on loans, can generally be claimed immediately (that is, deducted against your current year's income).
• borrowing expenses, depreciation and capital works spending can be deducted over a number of years.

In 2014, the ATO discovered $950 million in liabilities by cross-checking individual returns.
Mr Whyte says the ATO now has sophisticated technology to track down people whose claims are not real. The ATO’s new supercomputer collects 650 million separate transactions and cross-references bank accounts, share certificates, Centrelink payments and more.

When it comes to legitimate deductions, Mr Whyte refers to the Three Rs:

• It must be Real, that is that you must have spent the money yourself
• It must be Related; the expense must be directly related to your rental property
• It must be also Recorded; for instance there is a receipt

The best way to ensure you meet your rental property-related tax obligations is to seek the assistance of a registered tax agent.

Visit the ATO’s rental property claims guide page for more information.