About $45 billion in rental expenses were lodged to the ATO last financial year, pushing property investors’ compliance with tax laws to the top of the Tax Office’s agenda.
There are some key danger zones the ATO has got its eye on this financial year which investors should be aware of, particularly given the significantly increased likelihood of being caught out.
The ATO has access to data from a range of third parties – like banks and financial institutions – as well as information on rental bond data.
Short-term rentals
Australian property investors are increasingly capitalising on the rise of the short-term rental market, popularised through the likes of Airbnb. Investors can demand a premium per week, and be flexible with when their property is vacant. All rental income received must be declared in your return, renting out your property cannot be a hobby like activity.
Holiday homes
In order for a taxpayer to claim expenses on a holiday home, it needs to be genuinely available for rent, which is a key factor some property investors skip over.
If you’ve refused tenants on an unreasonable basis or waiting on conditions to be “right” then it starts to look a bit more like a private asset.
Property investors should also be careful to separate personal use expenses from those they declare to the Tax Office. Taxpayers will need to apportion out the expenses that relate to private in nature (the time you personally use the holiday home, or if it’s not genuinely available for rent).
The ATO is concerned about taxpayers creating artificial negatively geared property.
Loan calculations
The tax office is also concerned about taxpayers claiming interest where part of the loan was used for private purposes. For example, if you had a loan for an investment property and refinanced to acquire a car or go on a holiday this is private in nature. The interest requires to be split between the investment property and the private spending, this ensures you’re a claiming the portion of interest related to the property only.
Claiming immediate deduction
Taxpayers are entitled to claim the cost of repairs and maintenance immediately, but there are other adjustments to a property which are classified as ‘capital works’ and can only be claimed over a number of years.
For example, if the roof tiles on your property are damaged in a storm, and you replace the part that is damaged, you can deduct that immediately. However, if you replace the whole roof, that’s capital works, it’s a structural improvement. And you can claim that at a rate of 2.5 per cent for 40 years.
The ATO has cast a spotlight on the gig economy following allegations that food delivery company Foodora engaged in sham contracting earlier this year.
The key issue the ATO has at the moment with the gig economy is people think if they put someone as uber driver or as a food deliverer than they will be able to treat them as a contractor, but in some recent cases this might not be correct and they might actually meet the definition of being on employee.
The ATO are looking at how much control these firms have over the people that are working for them and whether or not they are meeting the requirements of being an employee because the companies are not giving them normal entitlements and from a tax point of view it means they are not getting their superannuation, and their PAYG Withholding.
If this effects you we recommend speaking to your HR Manager or a professional in employment law to help avoid any costly and time-consuming errors.
The ATO reviews and audits contract arrangements very closely. Where they can determine that a ‘contractor’ is actually an employee, they will expect the corresponding employer tax obligations to be satisfied. Interest and penalties may apply and potentially subject to additional scrutiny going forward.
ATO has had 37,000 reports of scam in the month of November. The scammers are using software that resembles a legitimate phone number to disguise the caller’s true identity.
The ATO has said taxpayers should be wary of any phone call, text message, email or letter about a tax refund or debt, especially if you weren’t expecting it.
The signs that it could be scammer on the other end are:
- The ATO will not use aggressive or rude behaviour
- Will never threaten you with arrest or jail
- Require a payment of debt via ITunes, pre-paid visa cars or cryptocurrency direct credit to a bank account with a BSB that isn’t either 092-009 or 093-003
- Send you an email or SMS asking you to click on a link to provide login, personal or financial information.
If you suspect that you have been contacted by a scammer, you should contact your tax agent immediately or call the ATO on 1800 008 540 to check if the call was legitimate or to report a scam
Melbourne Tax Advisory
1300 942 230