ATO Audit Hotspot for 2016 Tax Returns – Rental property owners

By 19 July, 2016News

In the 2016 year the ATO has stated that is will focus potential audit attention on holiday homes not being genuinely available for rent, excessive interest expense claims, and incorrect apportionment of rental income and expenses between owners.  Some real life examples of this are:

Holiday home not genuinely available for rent

A taxpayer had newly purchased a rental property that had not returned any rental income.   When questioned by the ATO he claimed that the property was occasionally advertised on community noticeboards and websites.  The ATO determined he had not taken sufficient steps to genuinely advertise the property for rent and the full rental loss was disallowed and penalties were applied.  In this case over $50,000!

Excessive Interest (caused by private borrowings becoming mixed in)

The taxpayer reported high rental interest claims and the ATO asked for bank statement, which showed borrowings well in excess of the original purchase price of the rental property and could not be explained by repairs or property improvements.   The interest charges relating to the private part of the loan were disallowed, which was actually lucky for the taxpayer as in some cases the ATO can disallow all the interest, even the legitimate borrowings part because the loan has become polluted.

Incorrect apportioning of split of rental expenses between owners

Where couples have a relatively higher income earner, the ATO is watching to ensure that the rental property expenses are still apportioned in line with the ownership percentage.  This is to stop the higher income earner claiming a larger proportion of the expenses to reduce their tax and a recent case resulted in the higher earner paying back more than $8,000 in tax.