17th Apr 2019
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Double the number of retirees in the ATO’s gun at tax time
Author: Ben Hocking
ATO doubles down on retirees

Last month we warned you that the Australian Taxation Office (ATO) was targeting taxpayers who own rental properties and on Wednesday the organisation announced it was planning to double the number of audits it would conduct on taxpayer claims for rental deductions.

This puts tens of thousands of retirees firmly in the ATO’s crosshairs.

According to an Australian Housing and Urban Research Institute’s (AHURI) report, 30 per cent of older Australians had retired with a second property by 2014, growing from 25 per cent in 2002. The proportion of retirement wealth derived from investment properties grew from nine per cent to 15 per cent over the same period.

In the 2017–18 financial year, more than 2.2 million Australians claimed over $47 billion in deductions.

ATO assistant commissioner Gavin Siebert says that this year, rental deductions are a top priority.

“A random sample of returns with rental deductions found that nine out of 10 contained an error. We are concerned about the extent of non-compliance in this area and will be looking very closely at claims this year,” he said.

When it comes to incorrect claims, the ATO’s detection methods are becoming more advanced.

“We use a range of third-party information, including data from financial institutions, property transactions and rental bonds from all states and territories, and online accommodation booking platforms, in combination with sophisticated analytics to scrutinise every tax return,” Mr Siebert said.

“Where we identify claims of concern, ATO staff will investigate and prompt taxpayers to amend unjustifiable claims. If necessary, we will commence audits,” he said.

“Over-claiming robs the whole community of essential services and will not be tolerated by the Australian community. The Government recently allocated additional funds to the ATO to extend its program of audits and reviews of rental properties.

“We expect to more than double the number of in-depth audits we conduct this year to 4500, with a specific focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing,” Mr Siebert said.

“Once our auditors begin, they may search through even more data, including utilities, tolls, social media and other online content to determine whether the taxpayer was entitled to claims they have made,” he said.

While no penalties will apply for taxpayers who amend their returns due to genuine mistakes, deliberate attempts to over-claim can attract penalties of up to 75 per cent of the claim. In 2017–18, the ATO audited more than 1500 taxpayers with rental claims, and applied penalties totalling $1.3 million.

In one case, a taxpayer was penalised more than $12,000 for over-claiming deductions for a holiday home when it was not made genuinely available for rent, including being blocked out over seasonal holiday periods.

Another taxpayer had to pay back $5500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.

“This tax time, our message to taxpayers is clear. If you are renting out a room or a property, any money you earn must be declared as income and any deductions you claim may need to be apportioned for private use,” Mr Siebert said.

For more information on holiday homes, visit ato.gov.au/holidayhomes

For more information on renting out all or part of your home, visit ato.gov.au/sharingeconomy

For general information on rental properties, including a suite of educational videos, visit ato.gov.au/rental

Is loan interest being claimed correctly?
If you took out a loan to purchase a rental property, you can claim interest (or a portion of the interest) as a deduction. However, if you use some of the loan money for personal use, such as paying for living expenses, buying a boat or going on a holiday, you can’t claim the interest on that part of the loan. You can only claim the part of the interest that relates to the rental property.

Do you know the difference between capital works and repairs?
Repairs or maintenance to restore something that’s broken, damaged or deteriorating are deductible immediately. Improvements or renovations are categorised as capital works and are deductible over a number of years.

Initial repairs for damage that existed when the property was purchased, such as replacing broken light fittings or repairing damaged floor boards, can’t be claimed as an immediate deduction but may be claimed over a number of years as a capital works deduction.

Do you have a holiday home?
A holiday home is different to a rental investment property. A holiday home is generally a private asset you use for family holidays, for which you cannot claim expense deductions.

However, if you let your property out at ‘mates’ rates’ (i.e. below market rates to family and friends) you can claim expenses up to the amount of income you receive. If your property is genuinely available for rent – which means making it available during key holiday periods, keeping it in a condition that people would want to rent it, and not unreasonably refusing tenants – it becomes more like a rental investment property and you can claim deductions for the days it is either rented or is genuinely available.

Have you kept records?
The No.1 cause of the ATO disallowing a claim is taxpayers being unable to produce receipts or other documents to support a claim. Furnishing fraudulent or doctored records will attract higher penalties and may also result in prosecution.

Do you have a rental property? Are you sure you’re not overclaiming? Will these ATO targets affect you?

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    COMMENTS

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    Not a Bludger
    18th Apr 2019
    10:33am
    The ATO is quite right in this approach - if one has taxable earnings and claimable deductions then file a return and all will be well.
    Once again, though, a most misleading headline from YLC.
    These checks are not targeted at retirees as a specific group but at all multiple home owners irrespective of status.
    And, as with Centrelink all rorters should be sought out and made to pay.
    Rae
    19th Apr 2019
    5:22pm
    You'd texpectretirees to have positively geared property anyway. How does a retired non worker get loans?
    Cowboy Jim
    18th Apr 2019
    10:37am
    Was a property owner in my younger years and never trusted myself to do my tax returns. Had an accountant doing the work for all the years I had rental places. And his costs were fully tax deductible in the following year's return. With all the changes how can you keep up?
    MICK
    18th Apr 2019
    11:10am
    Accountants know the lurks and what they can get away with. I stopped using these cowboys (oops) and do my own return now.
    Cowboy Jim
    18th Apr 2019
    3:22pm
    Am lucky Mick - do not do any returns any more. I learnt a long time to join the throng. Only worked for a living all my life not the other way round and saw the writing on the wall. Own very little these days.
    TREBOR
    18th Apr 2019
    7:31pm
    Indeed Jim - I liquidated the farm to set the kids up for life... not worth the trouble and contending with the neighbours all the time in a redneck community, plus droughts and bushfire and so forth.

    Own next to nothing these days...
    MICK
    18th Apr 2019
    11:08am
    The ATO has queried travel deductions as these are no longer deductible. Its a bit rich when landlords go to properties and do their own repairs and maintenance but its one way of coming after those who are perceived to be wealthy, whether they are or not.

    Holiday Homes: I see a lot of holiday homes in our region being rented out maybe 3 weeks a year. They're clearly homes kept for the enjoyment of the owners but I'd be sure they are being DEDUCTED as rental properties. The ATO should jump on this, but then you can't take away another sweetener from the the wealthy, which is what this is.

    We do a comprehensive tax return and try to be upfront with everything we claim but I understand others put in fraudulent deductions to avoid tax. Whilst I understand I fail to see why successive governments do not put an end to this.
    Cowboy Jim
    18th Apr 2019
    3:26pm
    Cannot see any reason why tax deduction are not allowed for ordinary people for holiday homes as long as pollies travel to family wedding on our nickel.
    A law for the upper classes like in feudal times it seems, not only LNP, Labor is on it as well.
    TREBOR
    18th Apr 2019
    7:32pm
    So true, Jim. We need to bring all under the same umbrella... and you are exactly right - feudal times revisited or restored... lords and labourers...
    retvilldotnet
    18th Apr 2019
    11:19am
    And what about the classic mistake many make but it is never followed up by the ATO. Mortgage existing house to buy a new house, rent old house and because it has a mortgage on it claim the interest as tax deductible. Problem is the test as to tax deductibility is 'what was the purpose of the loan' not which property has a mortgage on it.
    Knows-a-lot
    18th Apr 2019
    11:22am
    Greedy old land barons fiddling the books deserve to be targeted by the ATO
    Rae
    19th Apr 2019
    7:33am
    Greedy young land barons as well. Most of those holders of multiple properties are in the 30s from interviews I've seen. Not sure where the belief in old came from. Maybe the language of the MSM or someone like Grattan that want to steal our homes.
    panos
    18th Apr 2019
    11:22am
    About time they went after these rorters.....................
    johnp
    18th Apr 2019
    11:50am
    Would like to add this to the above
    Perks, salaries etc by the politicians robs the whole community of essential services and should not be tolerated by the Australian community
    Triss
    18th Apr 2019
    12:21pm
    Agree with you,johnp, but surprisingly the attitude of many folk seems to be “Good luck to them.”
    Paddington
    18th Apr 2019
    6:01pm
    You Target the politicians because they are visible. There are many rorters who are not visible and they are who the tax office are going after. People who hide and avoid not those in the public eye who easily get caught or do eventually.
    The loopholes need closing so the many companies and individuals who evade tax can help pay for hospitals and schools etc.
    TREBOR
    18th Apr 2019
    7:34pm
    I was frankly astounded that some were caught out making claims for non-existent investment properties..... not the Usual Suspects, was it?

    We live in an insane world where our governments would prefer to take easy money from honest people, knowing they will pay, but will let blatant criminals run free of charge.
    SFR
    19th Apr 2019
    12:08am
    That's because our current system is so complex from centrelink to the ATO. If you keep the system as simple as possible it's easier to catch the big fish rorters, but our politicians like to keep it complicated for their own agendas.
    Rae
    19th Apr 2019
    7:37am
    I imagine any country growing at such enormous rates with groups from all over the globe here to achieve a better life would have these types of issues. Look at the numbers of politicians not eligible for Parliament because of dual citizen issues.

    You can't expect old Aussie attitudes or values any longer. It's turning dog eat dog now. Catching up to the rest of the planet.
    KSS
    18th Apr 2019
    12:14pm
    Oh for goodness sake! Yet another totally misleading click bait headline.

    The ATO are not targeting retirees at all. They are targeting everyone who owns rental properties, a d who are cheating on their taxes. And so the ATO should.

    It gets very tiresome when this forum continually attempts to create unrest where non exists. It is not only retirees who own rental property and if they are cheating on taxes they have been warned. They have two months or more to put things right.
    Triss
    18th Apr 2019
    12:24pm
    So long as government and ATO don’t exempt politicians and ex politicians who own a load of properties, KSS.
    Cowboy Jim
    18th Apr 2019
    3:38pm
    Retirees are foolish to own rental properties, too much of a hassle. Just look at A Current Affair, all the destruction and non payment of rent. And people renting out properties without an agent are double fools. OK - some of you are lucky, but how long?
    Rae
    19th Apr 2019
    7:42am
    There has to be a motive for the MSM constantly pushing the idea that retirees are rich and causing the young to not have homes. Something sinister perhaps. Who wants our savings and homes?

    Cowboy is right. Unless you have a good family reason rental at less than 2% returns after costs now is a pretty dumb idea. It also stops you joining the aged pensioners in protected mode which is foolish if you are one of the hundreds of thousands living on similar incomes but without the concessions.
    TREBOR
    18th Apr 2019
    12:50pm
    Anyone got an objection to checking on possible errors and even rorting?

    Nine out of ten contained inaccuracies....

    "While no penalties will apply for taxpayers who amend their returns due to genuine mistakes, deliberate attempts to over-claim can attract penalties of up to 75 per cent of the claim."

    Sounds fair enough to me.... at least they'r not targeted by Robberdebt Inc and dragged through courts and given a criminal record...
    TREBOR
    18th Apr 2019
    12:52pm
    Are they???
    ardnher
    18th Apr 2019
    1:01pm
    Totally in favour of this. Has annoyed me for years that there are "some" retirees who are doing the wrong thing and rorting the system. Know some of them myself.
    Cowboy Jim
    18th Apr 2019
    3:34pm
    We all know some of them and then we also know quite a few who never worked in their lives, living in commission accommodation and also might have a bolt-hole in Greece for the summer, fully paid off while they were living here (before computer matching was possible).
    TREBOR
    18th Apr 2019
    7:36pm
    Pensioners who travel up from Malbun (we used to call the Merimbula Mexicans) and-a play-a da pokies at $5 a shot for da whole-a holiday...
    Linda
    18th Apr 2019
    2:35pm
    If the LNP are re-elected, buckle up. They are dedicated to the big end of town. It is ok to check up on folks and their taxes, to see if a given sector are able to lodge honest, error free reports. I am thinking what is likely is a robo call and automatic fines just like they did with Centrelink people. There is so much unsatisfactory about the current government, I can't understand why anyone would give that lot another go.
    Olbiddy
    18th Apr 2019
    2:42pm
    Regarding holiday homes, I think they should be let out at full market rates for at least eight months of the year to be considered eligible for negative gearing. Evidence of occupancy and rates charged should be submitted before deductions can be considered. There are just too many people rorting the system on this issue.
    Cowboy Jim
    18th Apr 2019
    3:30pm
    Holiday homes would be the first to knock off the negative gearing list; maybe just jealous as I have not got one and never had. So go on, soak the rich - vote for Bill! But do not regret it afterwards.
    john
    18th Apr 2019
    5:52pm
    THEY CAN AUDIT THE LIVING DAYLIGHTS OUT OF ME, I RIGHT NOW, AM NOT GETTING THE SAME AMOUNT IN RENT THAT I AM PAYING OUT FOR THE MORTGAGE ON THE INVESTMENT .
    It's been a struggle since 2017 , property trashed , lost rent for 8 months banks help was more a hindrance that a helping hand, then the rents plummeted , so I hope the bleeding tax office audits all those wealthy people with more than one property like the politicians and the unions etc.
    Just once it'd be nice to score .
    Try and try harder, it never really hits home in any big way.
    Then you read this sort of nonsense, well I hope they target the ones making a killing .
    I believe in bricks and mortar , yes, but its no guarantee to wealth any time fast.
    Rae
    19th Apr 2019
    7:57am
    Very few make a killing. You have to buy into the boom, renovated sell. Howard made it possible to make money speculating by halving the capital gains tax. Holding over time often loses investors money unless they are professional landlords.

    We will end up with professional corporations owning the rentals in Sydney and Melbourne if Shorten has his way.
    ardnher
    22nd Apr 2019
    12:55pm
    as a well known financial advisor once said "holiday homes are a waste of money"! I agree!
    better off buying some blue chip shares and getting a fully franked dividend
    Dermot
    18th Apr 2019
    10:06pm
    Flush out the rorters - the ones who bleed the country dry !!!
    SFR
    19th Apr 2019
    12:14am
    And that's the millionaires who pay zero tax as reported recently & all those big national& multinational companies that operate here & make a profit but pay no tax at all with the blessing of the government, hundreds of them
    cupoftea
    19th Apr 2019
    8:31am
    Holliday Home,I cant afford a holliday
    cupoftea
    19th Apr 2019
    8:31am
    Holliday Home,I cant afford a holliday
    pedro the swift
    19th Apr 2019
    8:51am
    Simple solution to ALL tax rorting! Stop ANY deductions for anything and anyone.Pay tax on income.
    That will cut out need for a huge tax minimisation industry and reduce the huge tax office staff Tax rate could be cut to be much lower and people would have no need to rort tax, still be able to collect useful taxes.

    23rd Apr 2019
    11:30am
    I hope they target the polies who have multiple properties and if they cheat and lie to the ATO like they cheat and lie to the public they are in big trouble or is one of their perks they don't get audited
    johnp
    23rd Apr 2019
    11:38am
    Yep, the pollies are the blood sucking leeches on society !! They demand the exorbitant salaries, perks etc cos they can !!


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