Landlords under investigation as ATO cracks down

Landlords who incorrectly claim deductions in their tax returns are likely to face an inquiry from the Australian Tax Office.

The ATO has announced that it will contact 100,000 rental property owners this year who might have incorrectly claimed tax deductions.

About 1.7 million property owners use negative gearing – where the income generated by rental payments does not cover the interest on the home loan – to claim the losses as a tax offset.

This generated a net rental loss of $6.5 billion for the financial year, according to Tax Office figures.

Economists claim negative gearing has pushed up house prices and exacerbated housing affordability problems.

Landlords are entitled to claim a number of deductions immediately, such as interest paid on a loan to purchase a rental property or to purchase land to build a rental property.

They can also claim other expenses during the course of owning a property, including the cost of depreciating assets, structural improvements and most borrowing costs.

However, landlords are not entitled to make the following deductions:

  • deductions for rental properties not genuinely available for rent;
  • interest on a loan used to buy a home that does not produce income or on a private home;
  • borrowing expenses or interest on the portion of the loan used for private purposes, like buying a new car;
  • travel expenses when the main purpose of the trip is a personal holiday;
  • stamp duty charged by a state/territory government on the transfer of the property title or leasehold interest;
  • insurance premiums for policies that will pay off the loan in the case of death, disability or unemployment; and
  • solicitor fees for the purchase of the property and the preparation of loan documents.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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