If you own an investment property, you’d better watch your claims.
That’s the message filtering down from the Australian Taxation Office. In a recent report from the Sydney Morning Herald it was revealed that the ATO is cracking down on 110,000 rental property owners who have made incorrect claims over the last few years. Apparently the ATO has “a team within the office known as ‘the doctors’ who are using sophisticated analytical techniques, including data mining, to identify unusual patterns of claims”.
Reports indicate that this specialised team has discovered more than $39 billion in deductions – up 18 per cent from the previous year.
It can be confusing trying to find out what you can claim for, so we asked Warren Littlefair, our resident financial guru and Director of Custom Financial Solutions, what owners should do to minimise the risk of an audit.
“Accurate claims are essential to ensure you get the biggest legal deductions on your investment property,” he says. “Ensure that all claims can be substantiated by keeping all your documentation such as loan and rental statements. Also keep smaller receipts for maintenance items.”
Understanding the difference between maintenance and capital improvements is vital: “You do not want to make the mistake of claiming a capital improvement in one year when it needs to be claimed across many years. There are many misconceptions regarding what is a genuine claim and what isn’t, so we suggest keeping detailed records and working with an accountant.”
Warren believes that the key to successful property investment is to have a clear plan of attack. “People invest in property for many reasons,” he says. “It could be as simple as growing your wealth or to just lower your tax. The most important thing you can do is have a strategy. Meet with your accountant and detail your investment property goals. Move forward with actions that will help you reach your goals.”
Warren’s parting advice is to confirm that loan structures have been put in place correctly: “It’s important to speak to an expert. The advisers at Custom Financial Solutions can give you the best advice and ensure everything is set up correctly from the outset.”