Staying out of the ATO firing line!
While many property investors miss out on valuable tax savings because they don't maximise their allowances, there are a number of investors who often end up in hot water with the ATO for overstating their expenses.
With the Australian Taxation Office announcing that they are ramping up client compliance monitoring we've thought we'd highlight a few key areas usually attract ATO interest.
1. Repairs versus maintenance. Always get professional advice before you claim property repairs as an outright deduction. This is a complex area and it can be hard to know whether the item/repair should be claimed as an instant deduction or whether the costs should be spread out over time.
2. Is the property an income producing asset at the time of the expense? This usually affects people who live in a property and then later move out and rent the property. You can only claim repairs as deductions when the property is being rented (or producing an income). So for example, if while you were living in the property you fixed the oven and then moved out, these repairs are not deductible because at the time of the repair the property was not producing an income.
3. Inconsistent depreciation and building allowance claims. The most common red flag for the ATO is an poor quality depreciation schedule. Mistakes made by some 'experts' include basing the building depreciation allowance on the purchase price not the original construction cost, and wrongly classifying plant and equipment items.
Play it safe. Always get a professionally prepared depreciation report to give to your accountant. If you make changes to your property during the tax year, call Washington Brown to ensure that you have the right documentation to get the maximum return on the money you've spent.