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ATO targets investors, holiday homeowners and your ‘other’ tax deductions

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Tax time 2018

With the end of the financial year fast approaching, taxpayers are scrambling to get their finances in order.

Each year, the Australian Taxation Office (ATO) sets their sights on particular groups of people to crackdown on tax evasion. In 2018, the 1.8 million strong Australians who are property investors and holiday homeowners are in the firing line, along with the countless millions of taxpayers who plan to claim on ‘other work-related expenses’.

Whilst maximising your tax return with dodgy and unsubstantiated claims can be alluring, it poses the risk of running into hefty penalties and even legal action.

Avoid the worry with our run-down of what you need to do to verify your claims this tax season.

Property investors & holiday homeowners

If you’re a property investor or holiday homeowner, the ATO will be scrutinising your claims with a fine-toothed comb this year. Some of the things to keep in mind ahead of tax time are:

  • Excessive interest rate claims: those who claim the costs of interest rates on the family home, as well as their investment properties need to be wary of their eligibility to do so. Remember, you can only claim expenses on properties that are used to produce income.  
  • Costs of renovations VS repairs: costs incurred for renovations and home improvements are added to the base purchase price of your property and can only be considered in the event of a capital gains tax assessment, once you sell your rental property. However, maintenance expenses, such as the costs to repair damage and defects which affect your tenants and your home’s suitability for rental can be included in your tax return.
  • Airbnb landlords eligible for deductions on expenses: those renting out their properties on Airbnb and other property-sharing platforms, must be aware that any claims must relate directly to income-earning and you’ll need receipts and records to substantiate your claims.
  • Holiday homeowners: holiday homeowners who don’t make an attempt at renting out their properties or do so at below market rates, need to consider their eligibility to claim expenses on the costs of maintaining their holiday home. Any expenses accrued on your holiday home must be proportionate to the amount of time the property was rented out as an income producing investment during the financial year.

    For example, if your holiday home was reasonably made available to rent at market rates for 50% of the year and was occupied by yourself or rented out to friends and family at well below market rate for the rest of the time, you may only claim losses on 50% of your property maintenance expenses.

How to take reasonable care with your other work-related expenses

Australians claiming ‘other work-related expenses’ will also be under the microscope this year as the ATO aims to crackdown on fraudulent claims. Last year, claims under this category cost the ATO $7.9 billion dollars.  

To ensure your claims are processed with ease, be vigilant and follow the golden laws of work-related expenses:

  1. You must have paid for it and were not reimbursed for the expense
  2. It must be directly related to your job and not a personal expense
  3. You must have records – including diary entries and tax invoices – to substantiate your claim

Other assets to consider

In addition to property gains and losses and work-related expenses, be mindful to declare other sources of income in your tax return this year. Cryptocurrencies, family trusts and interest earned on accounts and investments are just a few assets that will be in the limelight this tax season.

Cryptocurrencies
Cryptocurrencies have taken investors by storm, and are considered as assets by the ATO. As such, any cryptocurrencies you offload this financial year will be assessed for capital gains tax purposes. As with other assets, if you’ve held onto your investment for over twelve months, you may be liable for a discount on your capital gains obligations.

Family trusts
Family trusts are increasing in popularity as a way to hold family investments. To ensure your family trust ticks all the boxes, it’s imperative that all trust members declare any income gained from a family trust, including interest, dividends and any other income, in their tax return. 

Interest
Finally, don’t forget about the interest earned on accounts and investments this financial year. Interest earned on investments, including stocks and term deposits will be considered as ‘income’ and, therefore subject to taxes. 

 

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