The Australian Taxation Office (ATO) has intensified its campaign against rental property owners who submit their income and expenses inaccurately.
Based on earlier data matching programs, the ATO estimates that inaccurate reporting of rental property income and expenses results in a tax deficit of almost $1 billion. They want that back.
Banks and other financial institutions will therefore be required to provide the ATO with information on residential investment loans for an estimated 1.7 million owners of rental properties from 2021–2022 through 2025–2026.
The data that will be collected includes:
- Identification information, such as names, residences, phone numbers, and birth dates.
- Account information (BSBs, account numbers, balances, start and finish dates, etc.)
- Details of account transactions (such as the date and amount)
- Specifics about the property (addresses, etc.)
The data matching program specifically examines how rental property loan interest and borrowing expense deductions have been reported in the rental property schedules and whether net capital gains have been declared for property used to generate income, in addition to determining whether or not landlords are declaring their residential investment property income at all.
There are other sources of data besides banks. The ATO is focusing on rental property management software in a complementary program. Numerous platform providers have made it easier for the financial management of residential rental property to shift online during the past ten years. These rental property software suppliers will be required by the ATO to submit information on property owners, including their bank account information, income, expenses and the amount of those expenses, as well as information about their related rental properties and agents. The projected 1.6 million participants in this data program will have their data collected from 2018–19 to 2022–23.
With the crackdown from the ATO, do you need help with sorting through your rental property income and knowing what’s what? The team at MB Accounting and Business Services have detailed the tax implications of rental properties below. If you’d like more detail from a local Gold Coast Accountant, give us a call. Let’s recap the common problem areas:
Redrawing on loans and claiming interest
Your investment property loan’s interest payment is often tax deductible. The interest on the portion of your investment loan that you withdraw for personal use, however, will not be deductible. As a result, interest costs will need to be split into deductible and non-deductible portions, and repayments will frequently need to be divided as well. The interest on the redrawn portion of the loan should be deductable if the money is used to generate investment income.
You can deduct borrowing costs, such as application fees, mortgage registration and filing fees, mortgage broker fees, mortgage stamp duty, title search fees, valuation fees, mortgage insurance, and legal fees associated with the loan (usually over a five-year period). Even though getting the insurance was a prerequisite to acquire financing, it is not deductible if it is used to pay the loan off in the event of death. The entire amount, including mortgage discharge costs and penalty interest, may frequently be deductible if the loan is paid off early or refinanced.
Maintenance and Repairs
It’s crucial to comprehend the regulations because the Tax Office always pays close attention to deductions claimed for repairs and maintenance. The distinction between capital works and repairs and maintenance is a significant area of uncertainty. While capital works are often deducted over a number of years, repairs and maintenance can be claimed immediately.
Repairs must be directly related to the wear and tear that comes from renting out the property. This typically entails the replacement or renewal of a worn-out or damaged element, such as restoring a broken toilet or changing out damaged fence palings. The following costs, which are capital but are not deductible repairs:
- Replacement of a whole asset, such as a new hot water heater, oven, fence, or glass wall in place of a shower curtain, etc.
- Extensions and improvements.
Also keep in mind that any maintenance or repairs made to address issues that existed when the property was purchased are not deductible.
Want to get your rental portfolio tax sorted out before the ATO calls you? Chat with an accountant based locally in Ormeau. Get in touch with MB Accounting and Business Services, your local Ormeau Accountant and we’ll help you with your tax today.