Property deduction errors down to ‘lack of understanding’: ATO
A fundamental knowledge gap is continuing to trip property investors up, leading to simple mistakes and heaping pressure on tax agents, the ATO has revealed.
Last year, the ATO singled out rental property deductions as a “top priority” for the agency, with Commissioner of Taxation Chris Jordan claiming that errors were found in almost 90 per cent of returns.
For tax time 2019, the ATO doubled its number of in-depth audits for rental deductions to 4,500, with a specific focus on overclaimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing.
Speaking on sister title Smart Property Investment’s podcast, ATO acting assistant commissioner of individuals and intermediaries, Adam O’Grady said a vast majority of these errors were down to “simple mistakes” from investors and failing to disclose information to their accountants at tax time.
“What we find when we do review returns and audit people is more often than not, it's a simple mistake or it's a lack of understanding of what they're allowed to do, what they're not allowed to do,” said Mr O’Grady.
“The vast majority of people don't deliberately go out to claim things they shouldn't or obtain refunds. Those that do, finish up in front of the courts and prison and those sorts of things.
“It's really that lack of education, that lack of understanding. So, what we hear stories of when we sort of audit, they walked up to their accountant and said, ‘Oh, here's my income from the real estate agent. Here are my line statements; I don't know about the rest of the expenses," and just sort of scribble it down on a notepad and paper and say, ‘Oh, look, that's about what I think it is.’”
Mr O’Grady acknowledged that accountants are often at the mercy of their investor clients, noting that they are only as good as the information provided to them by their clients.
“Accountants out there are highly skilled, they understand the tax law, they can really help you, make sure you're structured in the right way and help you set up the proper recording requirements and all those sorts of things. But, they can only do that if you're open and honest with them,” said Mr O’Grady.
“You need to talk to your accountant, explain what you've done, why you've done it, how you've set it up, and then they can give you that right advice. But [if] you don't tell the accountant, they're not giving you the advice you need.”
Sharing economy focus
Mr O’Grady said investors receiving income from short-term rentals through sharing economy platforms such as Airbnb should be aware of the ATO’s new data-matching program that will identify taxpayers who have left out rental income and over-claimed deductions.
“Last calendar year for the first time, we actually collected data off a lot of these platforms, so we can see who rented their property out, for how long, what sort of income they earned from it, and we're working through that data and comparing that to tax returns to understand people that haven't reported that income or haven't reported the full amount, all those sort of things,” said Mr O’Grady.
“What we've been doing with the data we've acquired recently, is actually writing to people and giving them really an opportunity to self-correct their own return.
“It's more in that trying to educate people, that we can see you've got this income, you need to go and fix up your own affairs, and from this point forward, make sure you're reporting correctly,” he added.
“On top of that, we will use the data to audit people. So those, we do have some examples where people are on these platforms renting out 10, 20, 30 properties or rooms across various properties and not reporting on their tax obligations. So for those people, again, we'll take a pretty firm stance.”
Jotham Lian
31 January 2020
smsfadviser.com
Hot Issues
- FBT Reminder – Odometer Reading
- ATO’s debts on hold campaign prompts new IGTO guidance
- A comprehensive collection of small business benchmarks
- The 2025 Financial Year tax & super changes you need to know!
- Underperforming employees: When can you terminate?
- A comprehensive list of guides to industry specific tax deductions.
- ‘Renewed concerns’ about economy sees consumer sentiment dip: Westpac
- Oldest Buildings in the World.
- Small businesses may ‘collapse under strain of payday super’, IPA warns
- ATO’s hands tied with scrapping on-hold debts, expert says
- What Drives Your Business Growth and Profits?
- Australian Taxation Office (ATO) shifting to firmer debt collection activity
- Why employee v contractor comes down to fine print
- Sharing economy reporting regime for platform operators
- Countries producing the most solar power by gigawatt hours
- Illegal access nets $637 million
- Accessing superannuation benefits.
- Does your business have a company Power of Attorney?
- Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
- GrantConnect
- 2 in 3 SMEs benefit from instant asset write-off, survey reveals
- Updated guidance on R&D claims
- Do you know how to recover debts?
- Wheat Production by Country
- Types of small business benchmarks
- What is a Commercial Lease?
- ATO warns advisers against suspect R&D tax claims
- The year of workplace law upheaval
- Vimeo test
Article archive
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
- January - March 2015
- October - December 2014
January - March 2020 archive
- Covid-19 Update - Small Business
- PM launches $17.6 billion virus stimulus plan
- SG amnesty bill passes Parliament
- ATO flags most common SMSF return mistakes
- Expected GDP by country 2010 to 2100
- ATO expands small business review pilot
- A resource hub for our clients.
- Risks when dating documents in 2020
- Australian Taxation Office (ATO) debts may affect your credit rating
- Statistical picture of Australia - Update
- Absentee Property Owner – Tax Whack - Victoria
- Debate heats up around $10k cash ban bill
- There’s still time to move to Single Touch Payroll (STP)
- Real Time World Population Growth - Wow!!
- ATO audits continue to target Lifestyle assets
- Property deduction errors down to ‘lack of understanding’: ATO
- Data can be great stuff! - Australia
- GST refunds for returned imported goods
- 14k employers, $230m in super: Financial Services Minister defends proposed SG amnesty
- Bushfires 2019–20 (ATO)
- Accounting profession responds to bushfire crisis
- Helping your business survive a natural disaster - ATO
- Single Touch Payroll (STP) – now ensure super is paid on time.
- Beware of Australian Taxation Office (ATO) impersonation scams
- Australia by the Numbers
- ‘Visible, valued and owned’: ATO outlines super priorities for new year
- Introductory Rates & Interest Free Periods
- AcctWeb article april 2020
What our clients say about us