In the 2017-18 financial year, more than 2.2 million Australians claimed more than $47 billion in deductions and the ATO believes that is too much – one in ten is estimated to contain errors.
AH Jackson & Co partner Ben Odgers said what you can claim for your rental property has been significantly curbed.
“For example, you can no longer claim deductions for the cost of travelling to inspect the property. Also, you can no longer claim depreciation deductions for second hand plant and equipment,” he said.
“Previously, you could, for example, buy a rental property from someone else and then claim depreciation on the assets already in the property, such as the kitchen appliances and carpet. From 1 July 2017, you can only claim deductions for new assets you purchase and install in the property.
“This year, 4500 audits of rental property deductions will be undertaken with the focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing.”
Ben said rental property owners should be aware that deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim.
When you own a share in a property
For tax purposes, rental income and expenses need to be recognised in line with the legal ownership of the property, except in very limited circumstances where it can be shown that the equitable interest in the property is different from the legal title.
Ben said the ATO will assume that where the taxpayers are related, the equitable right is the same as the legal title (unless there is evidence to suggest otherwise such as a deed of trust etc).
“This means that if you hold a 25% legal interest in a property then you should recognise 25% of the rental income and rental expenses in your tax returns even if you pay most or all of the rental property expenses (the ATO would treat this as a private arrangement between the owners),” he said.
“The main exception is that if the parties have separately borrowed money to acquire their interest in the property then they would claim their own interest deductions.”
Earning money from the sharing economy
More and more, people are earning money from the sharing economy (AirBNB, Uber, AirTasker etc). However it is important to remember that income earned from the sharing economy must be declared in your tax return.
AH Jackson & Co partner Ben Odgers said it may be possible for you to claim proportional expenses associated with providing the service.
“Ensure that any deductions you claim are related to providing the service itself (not just switching on the app or making yourself available),” Ben said.
“Another thing to remember is that if you are a driver with Uber or another ride-sharing platform, you will need to be registered for GST regardless of how often you drive.”
If you would like to discuss any of the above measures please feel free to email your AHJ contact or enquiries@ahjackson.com or call (07) 3253 1500.