Want to know more?

Leave your details below and we'll get in touch! Alternatively you can also make a written enquiry via our Contact form.

×

Property deduction errors down to ‘lack of understanding’: ATO

A fundamental knowledge gap is continuing to trip property investors up, leading to simple mistakes and heaping pressure on tax agents, the ATO has revealed

   

 

Last year, the ATO singled out rental property deductions as a “top priority” for the agency, with Commissioner of Taxation Chris Jordan claiming that errors were found in almost 90 per cent of returns.

For tax time 2019, the ATO doubled its number of in-depth audits for rental deductions to 4,500, with a specific focus on overclaimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing.

Speaking on sister title Smart Property Investment’s podcast, ATO acting assistant commissioner of individuals and intermediaries, Adam O’Grady said a vast majority of these errors were down to “simple mistakes” from investors and failing to disclose information to their accountants at tax time.

“What we find when we do review returns and audit people is more often than not, it's a simple mistake or it's a lack of understanding of what they're allowed to do, what they're not allowed to do,” said Mr O’Grady.

“The vast majority of people don't deliberately go out to claim things they shouldn't or obtain refunds. Those that do, finish up in front of the courts and prison and those sorts of things.

“It's really that lack of education, that lack of understanding. So, what we hear stories of when we sort of audit, they walked up to their accountant and said, ‘Oh, here's my income from the real estate agent. Here are my line statements; I don't know about the rest of the expenses," and just sort of scribble it down on a notepad and paper and say, ‘Oh, look, that's about what I think it is.’”

Mr O’Grady acknowledged that accountants are often at the mercy of their investor clients, noting that they are only as good as the information provided to them by their clients.

“Accountants out there are highly skilled, they understand the tax law, they can really help you, make sure you're structured in the right way and help you set up the proper recording requirements and all those sorts of things. But, they can only do that if you're open and honest with them,” said Mr O’Grady.

“You need to talk to your accountant, explain what you've done, why you've done it, how you've set it up, and then they can give you that right advice. But [if] you don't tell the accountant, they're not giving you the advice you need.”

Sharing economy focus

Mr O’Grady said investors receiving income from short-term rentals through sharing economy platforms such as Airbnb should be aware of the ATO’s new data-matching program that will identify taxpayers who have left out rental income and over-claimed deductions.

“Last calendar year for the first time, we actually collected data off a lot of these platforms, so we can see who rented their property out, for how long, what sort of income they earned from it, and we're working through that data and comparing that to tax returns to understand people that haven't reported that income or haven't reported the full amount, all those sort of things,” said Mr O’Grady.

“What we've been doing with the data we've acquired recently, is actually writing to people and giving them really an opportunity to self-correct their own return.

“It's more in that trying to educate people, that we can see you've got this income, you need to go and fix up your own affairs, and from this point forward, make sure you're reporting correctly,” he added.

“On top of that, we will use the data to audit people. So those, we do have some examples where people are on these platforms renting out 10, 20, 30 properties or rooms across various properties and not reporting on their tax obligations. So for those people, again, we'll take a pretty firm stance.”

 

 

Jotham Lian
31 January 2020
smsfadviser.com

 


David Forrest Download David's Adviser Profile

David Forrest

Director
BEc (Acc), MBA, CPA, FFin

David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.

David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.

Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.

David maintains a strong personalised client service focus, providing tailored solutions for clients.

Qualifications:

Memberships:

Contact:

David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

Michelle Forrest

Michelle Forrest

Business Finance Manager
B Bus (Acc), CPA

Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.

Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.

With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.

Qualifications:

Memberships:

Contact:

Darren Chalk Download Darren's Adviser Profile
Natasha Bartlett
Kelly Collins
Jasmine Smith

Jasmine Smith

Client Service Manager

Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.

Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.

Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.

Jasmine has gained her Certificate III in Financial Services qualification.

Contact:

Merrilyn Smith

Merrilyn Smith

Senior Client Service Manager

Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.

Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.

Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.

Contact: