ATO Commissioner Chris Jordan has advised that as part of the ATO’s broad random enquiry program, its auditors have recently completed over 300 audits on rental property tax deduction claims and “found errors in almost nine out of 10 returns reviewed”.
The ATO is seeing incorrect interest claims for entire investment loans where the loan has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.
The ATO’s next area of focus will be rental income and related deductions, to help taxpayers report the right information, claim only the amounts they are entitled to, and “close the tax gap”.

In a March 2019 address to the Tax Institute Convention, ATO Commissioner Chris Jordan spoke about the ATO’s release of the Individuals not in business tax gap information for the first time in July 2018, in which it found that work-related expenses are the main driver of the tax gap. Incorrect rental claims and not reporting cash wages also contribute.

Mr Jordan said that following ATO efforts to ensure people claim only what they are entitled to, for the first time in almost 25 years the average work-related claim has decreased, falling on average by about $130 over the past two years. The estimated revenue gain for that same period will be around $600 million.

The Commissioner said the ATO’s next focus is rental income and deductions. As part of the ATO’s broader random enquiry program, its auditors have now completed over 300 audits on rental property claims and “found errors in almost nine out of 10 returns reviewed”. The ATO is seeing incorrect interest claims for entire investment loans where the loan has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.

The Commissioner concluded, “when you consider that rentals include over 2.1 million taxpayers claiming $47.4 billion in deductions, against $44.1 billion in reported income, you can get a sense of the potential revenue at risk”.

As 85% of taxpayers with rental properties are represented by an agent, the Commissioner said, “there is work we [the ATO and tax agents] can do together in this space”.

Source: www.ato.gov.au/Media-centre/Speeches/Commissioner/Commissioner-s-address-to-the-Tax-Institute-National-Convention-2019/?page=1#Individuals_focus__the_tax_gap

David Anderson Anderson & Associates