In April, the ATO detailed its new residential investment property loan (RIPL) data-matching program developed to prevent landlords from incorrectly claiming tax deductions and failing to declare rental income and pay capital gains tax.
Namely, the program will acquire residential property loan data, which includes client identification data as well as account, transaction and property details, from 17 banks including ANZ, St George, NAB, and Westpac, from 2022–23 financial year through to 2025–26.
Among other objectives, the ATO confirmed that the program is intended to “promote voluntary compliance and increase community confidence in the tax and superannuation systems”.
One of the most common errors among the incorrect apportionment of loan interest and private use expenses, the regulator reported, is claiming investment property costs as repairs rather than capital improvements.
According to Bradley Beer, BMT Tax Depreciation chief executive, there are nuances when it comes to claiming work on investment properties, with differences between how a renovation and general maintenance is claimed at tax time.
“We know that two thirds of investment properties have undergone some form of qualifying renovation or addition completed by current or previous owners. This reinforces the importance of having a thorough tax depreciation schedule prepared by a specialist quantity surveyor,” he explained.
Mr Beer reminded property investors lodging their tax returns in coming months that any rental property improvements made last financial year must be captured in an updated tax depreciation schedule, or risk making reduced or inaccurate claims.
“Investors who have renovated and who fail to update their tax depreciation schedule before lodging their tax return risk both being out-of-pocket and facing the scrutiny of the tax office.”
He also reinforced the importance of conducting a comprehensive site inspection as part of the tax depreciation schedule process.
“A detailed site inspection is essential to achieve the highest possible deductions while maintaining full ATO compliance. This position is endorsed by the Australian Institute of Quantity Surveyors and National Tax and Accountants’ Association.”
“Having evidence to support potentially thousands of dollars in deductions protects the investor now and for many years into the future,” Mr Beer added.
According to the ATO’s website, failure to address non-compliant behaviour has the potential to “undermine community confidence in the integrity of the tax and superannuation systems and our capability to administer those systems.”
