The Australian Taxation Office (ATO) has announced 3 key areas they will focus on this tax time:
- Rental property deductions.
- Work-related expenses.
- Capital gains tax.
Rental property deductions
An ATO review of income tax returns has shown that 9 in 10 rental property owners are getting their return wrong. Common mistakes include:
- rental income being left out, or
- incorrect property related deductions, such as overclaiming expenses or claiming for improvements to private properties.
The ATO “is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was re-financed with some private purpose)”.
It is important to remember that you can only claim interest on a loan used to purchase a rental property to earn rental income. If your loan also includes a private expense, such as for a new car or a holiday expense, you can only claim an interest deduction for the portion relating to your rental income.
Keep in mind the ATO has data matching capabilities which include rental property-related data and residential investment property loans matching.
Work-related expenses
There have been changes in how you calculate working from home deductions. The ATO says, “don’t be tempted to just copy and paste your prior year’s claims”.
To claim your working from home expenses as a deduction, you can use the actual cost, or the revised fixed rate method, so long as you meet the eligibility and record-keeping requirements. See our previous blog for more information on the different working from home methods.
It is important to keep good records. This will help you choose the right method that suits your circumstances.
Capital gains tax
Capital gains tax (CGT) is payable when you dispose of assets such as shares, crypto, managed investments or property. To ensure you are paying the right amount of tax, you need to calculate a capital gain or loss for the asset you dispose of (unless an exemption applies).
The ATO says, “generally, your main residence is exempt from CGT, however if you have used your home to produce income, such as renting out all or part of it through the sharing economy, for example Airbnb or Stayz, or running a business from home, then CGT may apply”.
It is important to keep records of the income-producing period and the portion of the property used to produce income to calculate your capital gain. If you used your property to earn income, and qualify for an exemption, ensure you make the election in your tax return.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2023. Please do not reproduce without the expressed written consent of the author.