ATO flags return concerns

As this Saturday brings Autumn to a close and 'tax time' approaches, the Australian Taxation Office (ATO) is again warning it will be taking a close look at claims for rental properties.

ATO Assistant Commissioner Rob Thomson says data shows that nine out of ten rental property owners are getting their income tax returns wrong.

"We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we're keeping a close eye on that.

"This year, we're particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit', Thomson warns.

Performing general repairs and maintenance on a rental property can be claimed as an immediate deduction. However, expenses which are capital in nature (such as initial repairs on a newly purchased property and any improvements during the time you hold the property) are not deductible as repairs or maintenance.

"You can claim an immediate deduction for general repairs like replacing damaged carpet or a broken window", Thompson notes. "But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works.

"We encourage rental property owners to carefully review their records before lodging their return and take care to ensure they are claiming deductions correctly."

Thompson says that as reporting rental income and deductions can be complex, many individual rental owners choose to use a registered tax agent to help them prepare their income tax returns.

"Ensuring you provide full and complete records to your registered tax agent allows them to prepare your tax return correctly, so you claim everything you're entitled to and nothing that you're not", he advises.

The ATO is also warning against rushing to lodge your tax return on 1 July.

"We see lots of mistakes in July where people have forgotten to include interest from banks, dividend income, payments from other government agencies and private health insurers", Thomson says.

"For most people, this information will be automatically pre-filled in their tax return by the end of July. This will make the tax return process smoother, save you time, and help you get your tax return right.

"By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO."

According to the ATO, the three most common errors being made by taxpayers are incorrectly claiming work-related expenses, inflating claims for rental properties and failing to include all income when lodging.