The vast majority of landlords are submitting inaccurate tax returns which cost the nation a combined $1.2 billion, even though most of them use registered tax agents.
The Australian Tax Office (ATO) today warned property investors against claiming expenses they're not entitled to, overclaiming deductions, and not having documentation for their claims.
The message comes with the end of financial year – and tax time – less than three weeks away, and follows a similar message from the ATO a month ago, when it said nine out of every ten landlords submitted a faulty return.
Today, it revealed those mistakes and deliberately misleading claims are being made even though 86 per cent of rental property owners use a registered tax agent.
The ATO also said there is a $1.2 billion tax gap – the difference between how much tax it should and actually receives – associated with rental properties.
Assistant Commissioner Rob Thomson said too many landlords claim expenses they aren't entitled to.
"It's normal for landlords to have to fix or replace damaged items in a rental property. But there is a bit of a myth that all expenses can be claimed immediately," he said.
"A repair can usually be claimed straight away, but capital items – think dishwashers, curtains or heaters – can only be claimed immediately if they cost $300 or less, otherwise they need to be claimed over time.
"We sometimes see rental property owners 'double dip' on expenses that the property manager has arranged and included on the property's income and expenses report for the year.
"Often, property managers will pay for expenses like repairs from the rent received. The amount they then remit to the property owner is net of these expenses. They will also send the property owner a copy of the invoice for their records."
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In one case, a landlord claimed a new cooktop, blinds and air conditioners as immediate deductions rather than a depreciating asset to be claimed over time.
But the real kicker came when they also claimed a second cooktop for their own personal use – something that caught the ATO's attention given the rental property only had one kitchen.
"The taxpayer didn't provide proper records to their registered tax agent and the agent also didn't question the claims," the ATO said.
"This meant mistakes were made in the taxpayer's return that were avoidable.
"The taxpayer's return was adjusted by the ATO, and the taxpayer also had to pay penalties and interest."
