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Property claims in focus as ATO draws up target list for 2022-23 tax returns
The Australian Taxation Office (ATO) has said its three key focus areas for 2022-23 tax returns are rental property deductions, work-related expenses and capital gains tax, with many taxpayers still getting their numbers wrong.
Assistant commissioner Tim Loh recently said the ATO is prioritising these areas where mistakes are commonly being made. The ATO’s review of income tax returns show nine in 10 rental property owners are getting their return wrong, and often sees rental income being left out, or mistakes being made with property related deductions – like overclaiming expenses or claiming for improvements to private properties.
“We encourage rental property owners and their registered tax agents to take extra care this tax time and review their records before lodging their return,” Loh said.
The ATO has estimated that its tax collection for 2019-20 fell short by around $9 billion for individuals. This means taxpayers paid around 94.4 per cent of the total theoretical tax rather than the full 100 per cent that was due.
The ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was re-financed with some private purpose).
“You can only claim interest on a loan used to purchase a rental property to earn rental income – don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income,” Loh said.
The ATO uses sophisticated data matching capabilities to check taxpayers’ numbers, including rental property-related data and it has also recently implemented a new residential investment property loans data matching program.
“This is just one example of the work we are doing to help you get your return right and make sure people are claiming expenses correctly,” Loh said.
“Generally, your main residence is exempt from CGT, however if you have used your home to produce income, such as renting out all or part of it through the sharing economy, for example Airbnb or Stayz, or running a business from home, then CGT may apply,” he said.
According to H&R Block, the ATO has a new data-matching agreement with 17 of the largest mortgage lenders under which they will supply a whole raft of financial information on taxpayers which the ATO can then use to cross-check with information provided on individual tax returns.
“So, this year, expect them to focus on the following excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property,” a H&R Block spokesperson stated.
“Incorrect apportionment of rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than jointly.
“Holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed.
“The key tip from H&R Block is to ensure that property owners keep good records. The golden rule is; if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.”
SMSFs too need to be vigilant. The Class Annual Benchmark Report for 2022 found that the number of newly established SMSFs failing to lodge their first return has grown significantly to over 26 per cent in 2020 from 3 per cent in 2013.
“This is particularly concerning if the ATO can see there has been a rollover into these SMSFs, then this is a strong indicator that illegal early release may have occurred,” the report stated.
Cryptocurrency transactions on the radar
The ATO is also targeting digital assets, including cryptocurrencies, NFTs or other digital assets. The ATO treats cryptocurrency like shares and many other investments, so it is generally regarded as a capital gains tax asset. The ATO uses data obtained from third parties such coin trading platforms to detect inconsistencies between individuals’ tax returns and its own information to check capital gains.
Capital gains tax comes into effect when you dispose of assets such as shares, crypto, managed investments or properties.
“To ensure you are meeting your obligations and paying the right amount of tax, you need to calculate a capital gain or capital loss for each asset you dispose of unless an exemption applies,” Loh said. “Don’t fall into the trap of thinking we won’t notice if you sell an asset for a gain and don’t declare it.”
