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Rental property owners tax deductions

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Understanding Dubious Tax Deductions for Rental Property Owners

Rental Property Owners: Navigate Tax Deductions Carefully
As the tax season approaches amidst the ongoing pandemic, it's crucial not to overlook the various aspects of your investment, especially with the ATO intensifying scrutiny on rental deductions.

Increased ATO Scrutiny on Rental Deductions
Following a review that found errors in nine out of ten tax returns concerning rental deductions, the ATO has doubled the resources for auditing property investor tax returns. Sophisticated analytics now assess claims using third-party data from financial institutions, property transactions, rental bonds, and online booking platforms.

Common Areas of Concern:

  • Over-claimed interest
  • Capital works mistaken as immediate repairs
  • Incorrect expense apportionment for holiday homes
  • Unreported income from accommodation sharing

Guidelines for Rental Property Deductions:

  1. Interest Claims: Interest on loans for purchasing rental properties is deductible. However, interest related to personal use portions of the loan is not.
  2. Capital Works vs. Repairs: Understand the difference—capital works involve renovations and are deductible over several years, while repairs for immediate damage or deterioration are deductible right away.
  3. Holiday Homes: Expenses can only be claimed relative to the income generated if rented out at discounted rates to friends or family.

Penalties for Incorrect Claims
While genuine mistakes may not attract penalties, deliberate over-claims could incur penalties up to 75% of the claim amount, emphasizing the importance of accurate reporting.

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This document is for general informational purposes only. Always consult with a professional for specific advice tailored to your situation.

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