If you own an investment property, you need to be especially careful with your tax return this year.

The Australian Taxation Office (ATO) has announced it will be keeping a very close eye on income reports submitted by landlords and property investors, in an effort to cut down on shortfalls in taxes paid by owners of rental properties.

Here’s everything you need to know about the ATO crackdown and how you can reduce the risk of mistakes in your tax return.

As a landlord or property investor, you are generally entitled to claim a number of expenses in your tax return. While you can claim tax deductions on the cost of things like property management fees, the tax office is worried investors are not submitting accurate income and expense declarations.

The Guardian recently reported that the ATO is losing $9 billion in tax revenue because of tax avoidance and errors made by Aussie taxpayers. Of this amount, around $1.3 billion comes from inaccurate investment property claims, which are either made mistakenly or otherwise.

Landlords, the ATO and income declarations

Tax rules around rental properties can be more than a little confusing, and it is easy to get things wrong.

For instance:
• You can’t claim full interest costs from refinancing a rental loan if you spend some of the funds on a holiday
• Repairs and capital works are not the same; each will affect your tax return differently
• If you live in your rental property for any period of time, you probably cannot claim 100 per cent of the running costs for the year

It’s easy for people to make assumptions when they report their income and expenses, which is why the ATO is set to scrutinise tax returns this year.

How will the ATO expose tax return errors?

To tackle the problem of inaccurate tax returns from property investors, the ATO is working with Australian lenders and financial institutions. This will allow them access to people’s account information so it can be cross-checked in reference to property usage, income and expenses.

In short, the ATO has the right to access your bank account and your data using sophisticated data-matching software, to check that you have submitted your tax return correctly.

Accessing this information and cross-referencing it with its own records will give the ATO a better understanding of the accuracy of tax return forms and what has and hasn’t been declared.

What to do this tax time

With the possibility of around two million Australian landlords having their data scrutinised by the ATO this year, there is a genuine reason to pay extra attention to your tax return, especially considering how easy it is to make honest mistakes.

One of the best steps is to work with a reliable property manager who can help you to keep track of expenses and income, and report everything accurately to your accountant. This takes the guesswork out of figuring out what you have spent in order to own and operate your property, and will make it easier to back up your claims to the ATO if you have to.

Want help to manage your investment property and keep track of the associated expenses? Contact our property management team today on (07) 5501 4000.