According to the ATO, what ‘mistake’ do 9 out of 10 property investors make? | Tax & Property Depreciation Schedule

According to the ATO, what ‘mistake’ do 9 out of 10 property investors make?


May 2024

Inflating repair claims and incorrectly claiming work as repairs when it should be depreciated is the ‘mistake’ that 9 out of 10 property investors apparently make. That’s according to a press release by the ATO last week, you can read more about this here

Using the word ‘mistake’ might be a tad generous. The ATO would see this error as more wilful than that, and they are increasingly onto it. 

In the ATO’s words, “This year, we’re particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit.”

So as rents have risen and properties stray into positively geared territory, people have sought to negate these rises by either inflating their repair claims or claiming as repairs work that should be depreciated. In other words, they have inflated their deductions. 

We have written about this a few times. Most recently here. But it is still a question we get asked daily by clients. In the 20 years we have been doing Depreciation Schedules, it is by far our most asked question. And accountants often ask us, too. 

Here are two general rules:

  1. If you make the property better than it was when YOU started to rent it out, it’s NOT a repair.
  2. If you replace a complete Asset, like a stove, instead of fixing the old one, it’s NOT a repair. 

If you make a large repair claim when you do your tax return this year, you may very well be asked to justify it. So keep receipts and ideally take ‘before’ and ‘after’ photos.

What other ‘mistakes’ do people make with rental property claims?

Do you have a residential or commercial property you would like us to help you claim depreciation for? Order online now or call us on 1300 660 033 and rely on our 20-plus years of experience in estimating depreciation returns.

A person holding up their tablet to the camera, showing Depreciator website on their screen. Depreciator are the Depreciation Schedule specialists. We've been producing Depreciation Schedules for over 20 years. We are the provider that more accountants prefer.Why is it important to get a Depreciation Schedule from a provider like Depreciator?

Because we don’t make mistakes. That’s why more accountants recommend us.

We’ve been doing this for over 20 years and it’s all we do.

Remember, when you commission and take delivery of a Depreciation Schedule and use the information in it to complete your tax return, YOU are taking responsibility for the accuracy of the information in it. 

We also provide free lifetime updates of our Depreciation Schedules. If you need another one, you can order one here.

Pool area of an Airbnb property, with a shade cloth overhanging the pool, and a table and chair setting to the sideWhat does Private Use of a property mean?

It’s something that generally relates to holiday homes. There are people who claim deductions against their holiday home equating to a full year. This implies that the home is available to rent for the whole year. When the opposite may be true.

Some people in reality use their holiday homes all summer.  And spring. And autumn. The truth is, the home may only be available in the middle of winter when it’s too grim to swim and then fish aren’t biting.

The ATO now gets data from platforms like Airbnb and Stayz and if your income vs deductions looks a bit fishy, you can expect a call.

Living room furniture in an Airbnb property that may be able to be depreciated as brand new furnitureWhy can’t I depreciate used furniture?

Because them’s the rules as of 2017.

That’s when the government decided to clamp down on successive investors claiming depreciation on the same Assets. Appliances, hot water, air con etc are all Assets. And so is furniture.

If the furniture was ‘used’, even just by you, before it is installed in your rental property, you can’t claim depreciation on it.

The same applies, of course, to used furniture you buy on Gumtree or Facebook Marketplace.

Brand new furniture can of course be depreciated. And leading up to June 30 is the time to buy it because of the tax advantages. We wrote about that last month here.

A kitchen with blue accents in a rental property where the owner has added new assets in preparation for renting the property out. The new assets have not been used, and can be depreciated.How old is an Asset before it is second hand?

That’s a bit like one of those ‘how long is a bit of string’ questions.

Buying items on Gumtree that are cheap because they are second hand is an easy one. There is no doubt there.

What about adding new items to the house you live in before you move out and turn it into a rental? As long as it was immediately before, you should be okay.

What if you build a house and need to live in it for  6 months to avail yourself of a First Home Buyers Grant? No dice. If you lived there for 6 months, the Assets are second hand when you move out. So accepting that Grant reduces your depreciation in the first 5 years or so by around 40%.

We do Depreciation Schedules on the occasional display home. The Assets (often including furniture) may have been in the home for a year, but nobody has cooked a roast in that oven and that bed has not been slept in, notwithstanding the possibility of a sneaky snooze by a bored salesperson. And importantly, the developer would not have been claiming depreciation on the Assets, so we would likely include them.

You can read more on second hand depreciating Assets on the ATO website.

Questions about depreciation? Email Depreciator, the depreciation specialists, for the answer.Do you have a residential or commercial property you would like us to help you claim depreciation for? Order online now or call us on 1300 660 033 and rely on our 20-plus years of experience in estimating depreciation returns.

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