ATO's latest property investment crackdown

The Australian Tax Office has signalled a crackdown on investment property tax claims.

It comes as a growing number of people top up their exisiting loans, then claim deductions on cash being used for new cars, holidays or to pay down other debt.

Karen Foat, ATO assistant commissioner, told Nine Entertainment it was targeting investment properties as "a top priority" after analysis revealed 90 per cent of rental deductions contained an error.

Foat advised audits scrutinising rental deductions will double this year amid the 2.2 million investment property owners.

The crackdown will look at borrowers who have used their loan account like a regular bank account, with deposits and withdrawals for a variety of private, investment or business purposes.

"If you have a loan that you use to buy an investment property, but then you draw down on the loan and pay for a holiday or car - the purpose of the loan is now partly investment and partly private, meaning that only some of the interest on the loan is likely to be tax deductible," said William Buck tax services director Todd Want.

Mr Want warned another focus will be investors who make one-off deductions for repairs or additions to an investment property that need to be claimed over several years.

Mr Want added: "The key point here is - were the materials the same, or similar and does the repair achieve the same function? If you replace it with something that is superior, then you probably can't claim the deduction, it must be depreciated over a number of years."

He said: "It might not be deductible in the year of replacing it, but instead needs to be depreciated and claimed over time.

The ATO has previously signalled it will also focus on people who do not declare income from short-term rentals or renting part of a house or unit.

Holiday property owners who claim expenses for periods where it not genuinely available for rent, or was used privately, will continue to be closely monitored.