A recently announced ATO drive targets investment property owners who are over-claiming tax deductions. Owners of both long-term rental and holiday rental properties are put on notice to have detailed records available to support their deduction claims.

BLOG: Investment property owners under ATO scrutiny

Investment property owners currently claim an average of $25,717 in deductions. Most of the time, these deductions produce a net loss which taxpayers are then able to offset against their other income. The ATO is concerned that some investment property owners are claiming deductions to which they are not entitled. In particular, their initiatives will focus on:

Rental property owners
Claims should only be lodged for times when the property is either rented out or genuinely available for rent. Periods in which personal use is made of the property cannot be claimed for. This is particularly pertinent to holiday homeowners. The ATO frequently encounters instances where owners claim rent deductions for times in which their holiday home is being used free of charge by themselves, friends or family.

Using extensive third party data, the ATO will perform intensive cross-checks to ensure the authenticity of claims that a property was available for rent. The ATO will draw on information sources like rental listing sites and will include both holiday and long-term rentals in its investigations.

Property damage and defects
ATO will also be shining the spotlight on false or erroneous claims regarding property damage and defects. Investment property owners can make immediate claims on costs to repair damage or defects that were already present in the property at the time of their purchase. Renovation costs are likewise unable to be claimed immediately. While these costs can be claimed back, they are deductible over several years rather than being instantly claimable.

Approximately 1.8 million Australians are investment property owners. Many owners of investment properties in popular holiday spots can expect a personal letter from the ATO reminding them to only claim deductions to which they are genuinely entitled.