The tax office today announced its three "focus areas" for this year, pointing the finger squarely at landlords claiming expenses they aren't entitled to.
Data shows 90 per cent of landlords are submitting incorrect tax returns, the ATO said.
"We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we're keeping a close eye on this," ATO assistant commissioner Rob Thomson said.
"This year, we're particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit."
The ATO said landlords are not allowed to claim property improvements (as opposed to repairs) as immediate deductions.
"You can claim an immediate deduction for general repairs like replacing damaged carpet or a broken window," Thomson said.
These countries have the highest income tax rates in the developed world
"But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works.
"We encourage rental property owners to carefully review their records before lodging their return and take care to ensure they are claiming deductions correctly."
The other two areas of concern flagged by the tax office are work-from-home expenses, and not including all income.
The latter error, Thomson said, was often a result of lodging a return in early July rather than waiting until the end of the month or August, when much of the information is automatically pre-filled.
"We see lots of mistakes in July where people have forgotten to include interest from banks, dividend income, payments from other government agencies and private health insurers," he said.
"By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO."
While most of the erroneous tax returns are mistakes, Thomson said some people knew exactly what they were doing when claiming expenses they were not entitled to.
"These are the areas that people are most likely to get wrong, and while these mistakes are often genuine, sometimes they are deliberate," he said.
"Take the time to get your return right."
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