What Property Deductions Will Be Targeted By The ATO this year

Chris Jordan from the ATO recently announced that property investors and their deductions were next in his sights after the success of his crackdown on work-related expense.

Apparently, in a test audit of 300 property investors, 90% made errors. With a success rate like that, it’s no surprise the ATO are keen to roll their sleeves up and tackle investors seriously. Read the full article by Jessica Irvine published in The Sydney Morning Herald below:

The $47 billion in deductions claimed against rental income every year will face tougher scrutiny from the Australian Taxation Office after more than 300 audits of investor returns revealed errors in nearly 90 per cent of cases. More than 2.1 million Australian taxpayers declare rental income to the Tax Office each year, but a check of returns has unearthed widespread errors in the popular tax deduction.

“A lot of people are getting things a little bit wrong, which adds up to a lot,” Tax Office commissioner Chris Jordan told The Tax Institute’s national convention in Hobart on Thursday.

Mr Jordan warned that property investors were now his “next focus”, following a successful crackdown on inappropriate work-related expenses, which has yielded $600 million in extra tax revenue. For the first time in nearly a quarter of a century, the average work-related expense claim fell by, on average, about $130 a year for the past two years.

They will look at interest wrongly attributed and erroneous claims on holiday houses

Property owners can now expect to receive the same attention from the Tax Office.

“Our next focus is rental income and deductions,” Mr Jordan said, revealing the random audits had unearthed myriad errors by property investors.

“We’re seeing incorrect interest claims for the entire investment loan where it 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.”

Property owners declare about $44 billion in rental income and $47 billion in costs associated with property ownership – including interest on loans – meaning the nation’s landlords are, on average, “negatively geared”, with expenses exceeding rental income. These rental losses can then be used to reduce tax payable on other income.

“And 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,” Mr Jordan said.

Of the nearly 2.1 million taxpayers who declared an interest in a rental property in 2015-16 – the latest year for which statistics are available publicly – 1.3 million reported a net rental loss for the year. Just over 800,000 were “positively geared”, with rental income exceeding expenses.

The ranks of positively geared investors swelled over the first five financial years of this decade, the figures show, thanks to a combination of falling interest rates and higher rents.

Declared rental income rose sharply, from about $34 billion to almost $42 billion. Declared interest expenses fell from about $24 billion to $22 billion over the five years.

But “other rental deductions” rose sharply, from $15 billion a year to $20 billion, and it is these deductions that are now in the ATO’s firing line.

In the May 2017 budget, the Turnbull government cracked down on the ability of landlords to claim the cost of travel to their rental properties as legitimate deductions, yielding half a billion dollars in revenue over four years.

Property investors also face a further tax crackdown under a Labor government, which has promised, if elected, to stop the landlords of newly purchased, established dwellings from being able to claim net rental losses against their other assessable income. Property investors who buy newly built properties will still be allowed to negatively gear them.

Labor’s changes would be grandfathered, so that all owners of existing investment properties will be able to continue to tax deduct net rental losses until they dispose of the property.

As this article demonstrates, the ATO are keen to ensure property investors are only claiming deductions that they’re entitled to under the current regulations. It’s likely incorrectly claimed Depreciation deductions may also dray attention.

The treatment of second-hand Assets in residential properties will be a special focus – remember, commercial properties were not affected by the 2017 changes.

It has been almost 2 years since the changes to the treatment of Assets were announced and some Depreciation Schedule providers are still getting it wrong. There are thousands of incorrect Depreciation Schedules out there and they will be landing on accountant desks this tax season.

Another deduction easy to target is the treatment of Special Levies. Too many people just claim Special Levies in the way they claim other strata fees.

Broadly speaking, the purpose of the Special Levy and the length of time someone has owned a property dictate the treatment of a Special Levy. Your accountant will be able to advise the correct treatment.

New Property Depreciation Landscape – Your essential guide

In November 2017 new depreciation legislation passed that has affected the depreciation entitlements for some residential property investors. We’ve spoken with many confused investors and accountants needing to get up to speed on the changes in the following months.

We’ve run several webinars covering the changes to the depreciation rules in detail and have been getting some great feedback, so we’re making a recording of the webinar available here. The New Property Depreciation Landscape video is a little over 20 minutes and covers all the ins and outs of the new Depreciation rules. If you’re a serious investor, tax or real estate professional and want to understand the new Depreciation rules this video is for you.

If you have any questions relating to a specific property, we’re always happy to assess properties free of charge and provide a no-obligation quote, just call us on 1300 66 00 33.

June 30 Property Depreciation Deadline

It’s about that Depreciation Schedule you have been putting off.

June 30 is going to sneak up on us and your accountant is going to need it.

We might already have most of the information we need to jump on it – we might just be waiting for you to press the button

To book a new Depreciation Schedule or get your job moving, call us on 1300 66 00 33. or email enquiries@depreciator.com.au

Are you on top of the changes to depreciation that were announced last year? You should be. To read a very simple explanation, just click here.

There are now a lot of incorrect Depreciation Schedules out there – many providers are not up on the changes. The ATO will be looking out for dud Depreciation Schedules and you want to make sure yours is not one of them.

We can also explain the changes over the phone and tell you in that phone call how much depreciation you might be entitled to. Just call 1300 660033.

Apart from organising your Depreciation Schedule, now is the time buy any Assets (fixtures and fittings) your property needs. Remember, Assets under $300 are deductible and Assets between $300 and $1,000 can go into the Low Value Pool for fast depreciation.

It’s also a good time to do repairs you might have been putting off – better to spend that money closer to June 30. Be sure you know the difference between a ‘repair’ and an ‘improvement’. The ATO certainly know the difference, and their definition of a repair might surprise you. We covered this and lots of other useful stuff in our FREE ebook.

Don’t forget if you refer a friend who goes ahead with a Depreciation Schedule, we will send you a $40 EFTPOS voucher. You must use our referral link, though.

Property Depreciation Changes – 2017 Budget

Depreciation Changes – 2017 Budget

Well, that caught everyone by surprise.

We are fielding plenty of calls from confused property investors. The waters are still a bit muddy, but here are a few points that might clarify some things:

1. This only applies to residential investment properties purchased after 7.30pm on May 9, 2017. ‘Purchase’ is generally defined as the date you put down a deposit on your investment property and contracts are signed and exchanged.
2. So if you already own your investment property, you are not affected. This is called ‘grandfathering’. It means changes are not retrospective.
3. The changes affect Plant and Equipment. A more common name for this stuff is Depreciating Assets: stoves, carpet, air con, curtains, and blinds etc.
4. If you buy a second-hand investment property, you will no longer be able to depreciate the stove, carpet etc.
5. The reason for this is simple. The government wants to stop the same items being depreciated over and over by consecutive property investors.
6. Depreciation on the building itself is not affected.
7. With a new investment property, you should still be able to depreciate the Assets because you are the first owner of them.
8. If you bought an investment property new, lived in it for a while and then moved out and turned it into a rental property, you should be able to depreciate the Assets because you are the first owner of them.
9. Commercial property is not affected.

The above is our interpretation of the changes on the 9th of May in the 2017 Budget and there are things yet to be confirmed. Given the uncertainty, if you are sitting on a property that needs a Depreciation Schedule, do it now. Call us on 1300 66 00 33.

How long does it take to prepare a Depreciation Schedule?

We generally quote a 2-3 weeks to prepare a Tax Depreciation Schedule and usually we are able to do it quicker.

Really the only thing that can cause delays are tenants. These days, most people are pretty busy and we understand this. That’s why we’re flexible our Quantity Surveyors will work in with the needs of the tenants. Sometimes that means we need to inspect out of normal business hours or on the weekend. We also understand that often we’re asking tenants to let a stranger into their home to poke around and estimate costs. Because of this we’re really sensitive to their situation and respectful of their space.

If we have a delay – for whatever reason – we’ll always let you know. We’ll tell you what the issue is, and when we expect to get the Schedule to you.
Priority Jobs

If you have a need to get a Schedule prepared faster, just give us a call on 1300 66 00 33and we’ll do all we can to help. Naturally, tax season is our busy time. Don’t leave it till then to organize a Depreciation Schedule.

Canberra: our most liveable city. And that’s not the bad news.

The Property Council of Australia has identified our national capital as the country’s most liveable city in its 2013 My City survey.

According to the Property Council, and the statistics they’ve put together, Canberra is now Australia’s most Liveable City. Can you imagine what the people in… EVERYWHERE have to say about that?

Not that we don’t adore Canberra, but the Property Council’s own title for the survey, “My City The People’s Verdict”, suggests a more slightly subjective evaluation than any which would deliver this result.

Of course, all the criteria are spelled out in painful detail here for all inclined to pour over.

Apparently it should be called the Affordability Award, not the Liveability Award.

My guess is though that few of us will even get to the bit noting that only 10 cities qualify, before having a bit of a chuckle and moving on to some real news.
And it seems that the Canberra’s Liveability status is safe as Henry Henry Belot reports further declines in house prices in the nation’s capital.

See the Australian Property Investor Article below:
The Property Council says the liveability of Australian cities is being supressed by a lack of quality, affordable housing.

“Australia’s cities are vital to the prosperity of our nation, and yet they barely achieve a pass mark on the most important measure: liveability.”

The survey of 5400 respondents across 10 cities showed residents rated housing affordability alongside the cost of living and job opportunities as the most important issues for our cities.
Canberra, Adelaide, Hobart and Melbourne make up the top four liveable cities but all with scores below 66 per cent.
The final four placegetters are Wollongong, Sydney and Perth, with Darwin taking out the wooden spoon.
Nick Proud, an executive director with the Property Council, says city dwellers should expect more.
“Access to affordable housing continues to be a top priority for Australians right across the nation.”

Proud says governments on all levels are failing to address the issue.

“However, residents are unimpressed with the performance of state and territory governments in delivering greater housing choice and more affordable housing.

“Respondents were also very clear that they expect the new Abbott Government to take a sober look at housing supply and affordability – they’re not interested in buck passing between Canberra and the states.”