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Rental Income & Expenses High on ATO List
Rental income and expenses claims will again be high on the Australian Tax Office's agenda when it looks at this year's tax returns, according to Australia's largest accounting and finance organisation, CPA Australia.
The reason is due to the high incidence of mistakes taxpayers make in this area, including understating rental income and over-claiming deductions.
According to the ATO, in 2004 nearly 1.4 million taxpayers declared $15.2 billion in rental income but claimed $17.8 billion in rental deductions. While rental income rose about 12 per centcompared with the previous year, rental deductions jumped 19.5 per cent. This has raised alarm bells.
'In July, the ATO wrote to 100,000 new rental property owners to alert them to their concerns. They will also be visiting tax agents whose clients have a history of high rental claims, conduct 6,000 risk reviews and around 3,600 audits,' according to CPA Australia's Senior Tax Counsel Paul Drum.
He added that many rental property owners claim deductions when their property is not genuinely available for rent. Others try to hide rental income on holiday homes. Common mistakes include:
- overstating interest deductions by including amounts related to borrowing expenses
- claiming deductions for a property that is not genuinely available for rent
- not claiming partial deductions when a property is rented for only part of the year
- claiming initial repair or renovation costs as repair and maintenance costs - rather than correctly attributing these to the capital cost of the property
- incorrectly apportioning deductions related to private borrowings or travel
- incorrectly claiming deductions against rental income for legal and other costs that should be treated as capital expenses, and
- not declaring all rental income.
'Australia's love of property as an investment over the last few years has seen both rental income and expenses skyrocket. The ATO is keeping a close eye on this and is improving its ways of detecting those who mistakenly and intentionally understate income or overstate expenses.
'So, I strongly suggest that taxpayers are careful when they file their tax returns. To ensure they get it right first time, we suggest they see a CPA,' concluded Mr Drum.
Source: CPA Australia (www.cpaaustralia.com.au)
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No hiding place for Capital Gain Tax Avoidance
The nation's largest accounting and finance organisation, CPA Australia, has warned taxpayers to make sure they declare capital gains as the Australian Taxation Office is stepping up its campaign to identify those not complying with their tax obligations in this year's returns.
According to CPA Australia's Senior Tax Counsel Paul Drum, the ATO has excellent data-matching systems in place, thanks to the information technology revolution.
'The ATO is now able to gather large volumes of records from State and Territory revenue agencies and land titles offices relating to property sales to identify non-compliance with capital gains tax. This information allows them to compare owners and property against ATO data and information declared on tax returns,' Mr Drum said.
'Taxpayers who avoid declaring a capital gain on shares or property in their annual tax returns run the risk of heavy fines and, in extreme cases, jail.
'Last year, the ATO raised $30 million from over 3,300 CGT reviews and audits and is expected to conduct similar audits this year which could unearth even more investors who have not complied with the tax laws.
'The ATO's methods are becoming more sophisticated. The saying 'you can run but you can't hide' is becoming more apt by the year for investors who try and avoid CGT,' Mr Drum said.
He added that the ATO will expand its database with information from share registries, commercial service providers, rental bond authorities, mortgage brokers selling low doc loans and the Australian Valuation Office.
Mr Drum warned that this year the ATO will be targeting capital gains from the sale of rental properties, vacant land, holiday homes and sales of shares and managed fund investments.
'Taxpayers should make sure that they have appropriately documented records relating to renovations, interest and insurance costs, date of settlement and building plans. And they must also retain records of anything relevant to assessing their capital gain or loss for at least five years,' he said.
Now is the time to get those records right or to seek the help of a CPA.
Source: CPA Australia (www.cpaaustralia.com.au)
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