ATO target property deductions


With tax time upon us, the ATO has launched its usual blitz of announcements on the business activities and deductions on which it will focus its compliance activity in the new tax year.

At the top of the list are rental property deductions. The number of people who own second homes - either for rental or for their own use - has exploded in recent years and the ATO is concerned that those entitled to deductions are over-claiming, while others are claiming deductions to which they are not entitled. The classic example of the latter is holiday home owners who use their property for personal use rather than renting it out to holiday-makers.

The ATO has said that it will write to investors who own properties in popular holiday areas to remind them to claim only the deductions to which they are entitled. Rental property owners can claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can't be claimed. Also, the costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. Instead, they are deductible over a number of years.


Don't forget that the ATO has access to numerous sources of third-party data, including rental listing sites, so it is relatively easy for it to establish whether a claim that a property was "available for rent" is correct.

Mark Chapman is director of tax communications with H&R Block.

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