The Australian Taxation Office (ATO) said on Wednesday that landlords are overclaiming deductions and failing to understand when they can claim things like repairs as an expense.

“We understand rental property owners may already have long lists of things to fix in their properties,” ATO assistant commissioner Rob Thomson said.

“But by getting your tax return right the first time, you’ll avoid having to add ‘fix up tax return’ to your to-do list down the track.”

Landlords targeted

With tax time now less than a month away, all other Australians are preparing to file their returns against the backdrop of an ATO push to close multibillion-dollar tax holes.

Landlords have been identified as a target because the ATO has used data from a huge number of sources – including banks, land title offices, insurers and even Airbnb – to find widespread errors on their tax returns, despite most of them paying for help.

Thomson warned landlords against “relying on things they hear at a Sunday afternoon barbecue”, saying they need to be honest with accountants about rental income and expenses.

“Rental property investments and taxation can get tricky, so it pays to get the right advice from the very beginning,” he said.

H&R Block director of tax communications Mark Chapman predicted that the ATO would be focusing on landlords this financial year after an audit revealed huge errors from last year.

Dodgy expense claims

One of the big issues appears to be the way landlords are claiming expenses, particularly around repairs and whether buying appliances can be claimed immediately, or must be depreciated.

“The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately,” Chapman said.

“These costs are deductible instead over a number of years.”

Thomson spotlighted this issue specifically in his statement on Wednesday.

‘It’s normal for landlords to have to fix or replace damaged items in a rental property. But there is a bit of a myth that all expenses can be claimed immediately,” he said.

“A repair can usually be claimed straight away but capital items – think dishwashers, curtains or heaters – can only be claimed immediately if they cost $300 or less, otherwise they need to be claimed over time.”

Record keeping key

Chapman’s advice for landlords is to keep airtight records so the ATO won’t raise a red flag.

“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 expenses,” Chapman explained.

The ATO said on Wednesday that record-keeping problems were a leading cause of errors on landlord tax returns.

It said detailed and complete records are required for expense claims, including bank statements for any interest expenses related to a rental property.

“You should also detail how you calculate your deductions and any apportionments. This will allow you or your tax agent to correctly complete your tax return,” Thomson explained.

– TND