The ATO (Australian Taxation Office) warns property investors it will pay close attention to their reported income and deductions this tax time. Based on official data, 90% of investors make mistakes on their tax returns.
ATO assistant commissioner Rob Thomson emphasized the importance of correctly categorizing expenses related to rental properties. He said that general repairs and maintenance are eligible for immediate deduction. While expenses considered capital in nature, such as immediate repairs on a newly purchased property or significant improvements made post-purchase, cannot be claimed as repairs or maintenance.
Thomson cautioned landlords against common mistakes, especially regarding deductions for repairs and maintenance. The ATO is closely monitoring landlords who may have exaggerated claims to offset increases in rental income. Landlords usually do this to prevent inflating deductions for a greater tax benefit.
“We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties. So, we’re keeping a close eye on this. This year, we’re especially focused on scrutinizing claims that landlords may have inflated to offset increases in rental income.” he said.
“You can claim an immediate deduction for general repairs like replacing damaged carpet or a broken window. But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement. These improvements are deductible over time as capital works.”