3 June 2025
The ATO is ready for you.
But are you ready for them?
There is an old proverb (are any proverbs new?) that says ‘to be forewarned is to be forearmed’.
All of which might sound a bit combative, but it needn’t be. The key to dealing with the ATO is to know the rules and work within them. Because if push comes to shove, they’re going to win.
So what are the things to be aware of?
First up, if you are claiming depreciation, get a Depreciation Schedule from a reputable provider like, um, Depreciator. We’ve been doing them for well over 20 years and the ATO know all about us. You can make an enquiry here.
Be aware also that the ATO knows a lot about you. Every year, their data matching program expands.
Then there are the old favourites, knowing the difference between repairs and maintenance and understanding how to treat Special Levies.
Key Points
- 1. Get a Depreciation Schedule from a reputable provider – like Depreciator!
- 2. The ATO knows a lot about you from data matching programs. Make sure you are declaring your income, expenses, and deductions accurately.
- 3. Repairs vs improvements – understand the difference and claim these correctly. To claim a repair, the damage must have occurred while YOU were renting out the property. Otherwise, it’s an improvement.
- 4. The treatment of Special Levies comes down to the nature of the work and the timing of the work.
- 5. Refer a friend to Depreciator and get rewarded with a $40 EFTPOS Gift Card!
Why is it important to get a Depreciation Schedule from a reputable provider?
We had an email recently from a client who had had her Capital Works deduction queried by the ATO. The client received a letter asking, pleasantly (but also sort of threateningly), whether they had made an error and would like to reconsider the amount of the claim.
Understandably, this invitation caused some concern so they contacted us.
Now, bear in mind, the Capital Works figure is just a line item on a tax return so we suspect AI might have been at work. Perhaps the Capital Works claim for that particular address was higher than expected relative to surrounding properties?
We immediately wrote a response for the client to send the ATO. In that response, we noted the size of the house – larger than others in the area – and the quality of the construction. And we noted there had been improvements made to it subsequent to the initial 2002 construction. Finally, we mentioned that a Quantity Surveyor had inspected the house to estimate the historical construction cost.
Problem solved.
No other provider of Depreciation Schedules would act so quickly and be so helpful. Those cheap online providers that pop up in tax season? Not a chance.
That’s why clients come back to us and it’s why more accountants use us than any other provider.
What does the ATO already know about people?
A lot.
More than their accountants in some cases.
More even than their mum.
We’ve written before that the ATO’s data matching programs are getting so comprehensive that there will come a day when instead of taxpayers doing a tax return and estimating their refund, the ATO will get in first and tell people what they’re willing to give them.
It will then be up to taxpayers to argue their case if they think the ATO are short changing them.
The ATO have long had access to bank details and share dividends. And of course salary details.
More recently, short term rental platforms were instructed to share with the ATO payment details made to property owners – quite a few people who rented out rooms in their home and did not declare the income would have been disappointed about that.
And surprised about the possible CGT implications down the track.
Rental Bonds in various states now share property owner details with the ATO.
And most recently, the ATO went to providers of property manager software to elicit from them information on landlord payments.
Repairs vs improvements – that old one.
It is still the thing that clients ask us most about – surely it’s not because they don’t read our occasional emails?
Perhaps instead it’s because it’s cheaper (free!) to chat to us than their accountant?
We write about this often – most recently here.
Most of the confusion will be cleared up if you bear these things in mind:
- 1. A ‘repair’ to the ATO means dealing with damage or deterioration that happened while YOU were renting out the property.
- 2. If the damage was there BEFORE you started to rent out the property, you have ‘improved’ the property so you claim that work at 2.5% per year.
- 3. Replacing an entire item like a stove, hot water heater, air con etc is NOT a repair. You need to depreciate the new item, but the good news is that those things depreciate very quickly.
How to claim Special Levies – that other old one.
The treatment of Special Levies can be a bit trickier than repairs vs improvements, but it still comes down to the nature of the work and the timing of the work.
We covered this more recently here.
Let’s look firstly at the nature of the work.
If the Special Levy was imposed to improve the building by adding, say, a BBQ area in the grounds, you claim your contribution at 2.5%. That’s easy.
If the Special Levy was imposed to deal with a repair issue that arose while YOU were renting out the property, you treat your contribution as an expense i.e. you write it off.
But if the Special Levy was imposed to deal with a problem that existed before you started to rent out the property, you need to claim your contribution at 2.5% per year.
‘That’s not fair!’ some people say. ‘A repair is a repair!’ They might even stamp their feet as they say it. So let’s ponder why the ATO might have taken this line.
We had a client who had been living in an apartment for many years and over time it became apparent that concrete cancer was developing – that’s when the reinforcing steel in concrete rusts.
Cancer, in buildings or people, is never good. But in the case of buildings people tend to ignore it – they kick that can down the road. Until they can’t. By then, the problem and the cost to fix it, can be huge.
In the case of our client, they were staring down the barrel at a $56,000 Special Levy. Their idea? To move out of the property and rent it out and claim that Special Levy as a repair ‘because, y’know, fixing that concrete is a repair‘. Do you see now why the ATO have their own definition of what a repair is?
Refer a friend
Do you have a friend with an investment property that needs a Depreciation Schedule?
Refer them to Depreciator – use the link here and earn yourself a $40 Gift Card.
And if your friend doesn’t know anything about depreciation? Share this video that quickly explains what depreciation is and how they can claim it.
Do you have a residential or commercial property you would like us to help you claim depreciation for? Or a question about depreciation?
Order online now or call us on 1300 660 033 and rely on our 20-plus years of experience in estimating depreciation returns.
