Given the growth in the SMSF sector and the increasing popularity of strategies such as limited recourse borrowing arrangements (LRBAs), H&R Block predicts that property will remain a top priority for the ATO’s compliance work in the sector this year.
“I know the ATO always keeps a close eye on property investment and especially LRBAs,” director of tax communications at H&R Block, Mark Chapman, told SMSF Adviser.
The ATO foreshadowed in an announcement late last year that LRBAs could be an increased area of focus in 2016.
This particularly applies to related party borrowings which may currently be structured on non-commercial terms, with the deadline to have these structures rectified being June 30 this year.
Speaking more broadly, Mr Chapman believes the ATO will continue to insist on monitoring compliance regarding rental property income and deductions, following the 2015 campaign which saw 500 postcodes issued with warnings that urged holiday home owners to ensure deductions were not made during periods in which a property was not available for rental.
“With property rental a valuable source of extra income for millions of taxpayers, it can be expected that the ATO will follow up with some targeted reviews and audits this year,” Mr Chapman said.
He also noted that the ATO will up the ante in a crackdown and investigation of the ‘sharing economy’, “driven in part by the high levels of non-compliance amongst those driving for Uber or renting rooms through Airbnb”.
“The ATO was caught unawares by the growth of the sharing economy and has had to play catch-up to avoid being left behind in terms of tax collections and voluntary participation,” noted Mr Chapman.
“They’ll now want to make up for lost time and make their presence felt.”
Small businesses are also set to find themselves in the tax office's sights, with Mr Chapman warning those businesses that are currently stretching their entitlements and utilising ‘creative’ financial measures regarding their $20,000 small business tax write-off.
"As taxpayers start to submit tax returns including claims under the instant asset write-off rules, we reckon these deductions will be closely scrutinised by the ATO and there is likely to be high-profile audit action against those who are stretching or breaking the rules,” he said.