This tax season will see the ATO specifically targeting extreme or inappropriate deductions made by rental property owners.

While it is not uncommon to make some mistakes when claiming rental deductions, it is necessary for taxpayers with rental property interests to get their deductions and expense claims right to avoid facing harsh and costly penalties. Last year, the ATO contacted more than 350,000 taxpayers about omissions and errors in their returns.

This 2015-16 financial year will see the ATO increasing its focus on four main problem areas where rental property owners are incorrectly, whether by error or design, claiming deductions that don’t necessarily suit their circumstances. These include:

Claiming excessive deductions
The ATO recently amended deductions claimed for a holiday home. Deductions may only be claimed for the periods when the holiday house property was rented out, or when it was genuinely available for rent. Deductions should also be limited to the amount of income earned by the property owner when the property is rented out below the market rate to family or friends.

Partners splitting income and deductions
Husbands and wives who own property together, but divide the income and deductions unequally to receive a tax advantage for the higher income earner, will be heavily penalised by the tax office. These kinds of arrangements will attract higher penalties if the ATO believes that they are carried out deliberately.

Repairs or maintenance claims
The ATO will carefully examine any repair and maintenance costs incurred by a property owner after a property is bought. These ‘initial repairs and improvements’ costs to a property are generally not deductible, but can be added to the capital cost of the property.

Claiming for interest deductions
Interest expenses incurred for a rental property are only deductible when the property is used to produce rental income. For example, those who own a two-storey house and live privately in the bottom storey but lease out the top storey can only claim 50% of the interest expenses. Property owners must be aware that any interest expense incurred from the private use of a property is non-deductible.

For more information on Rental Property Deductions, please phone us at our Newcastle Office, Leenane Templeton Chartered Accountants and Business Advisors on 02 4926 2300

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The 2015 Budget made sweeping changes for individual taxpayers and families with its focus on improving the economy.

Car expense deductions

The Budget has introduced new modernised methods for calculating work-related car expense deductions from the 2015/16 income year. The ‘12 per cent of original value method’ and the ‘one-third of actual expenses method,’ which are used by less than 2 per cent of those who claim work-related car expenses will be removed.

The ‘cents per kilometre method’ will be modernised, allowing workers to claim a deduction for each kilometre driven in the car for work based on a schedule of typical costs. Under the new regime, one rate will be set at 66 cents per kilometre to apply for all motor vehicles. Taxpayers can continue using the ‘logbook’ method of calculating expenses if they do not want to use the cents-per-kilometre approach. These changes will adjust car expense deductions to align with the average cost of running a car.

Pensioners

The plan to index the pension to the Consumer Price Index has been axed. Instead, the Budget will be making the savings from people with substantial private assets.

Ageing workers

A flexible wage subsidy will give older Australians approaching retirement an incentive to remain in the workforce with the possibility of receiving a bonus later. It will also shorten the length of time Australians over the age of 50 have to wait on income support or the pension before they qualify for job incentives.

Amendments to the new Restart program will offer older workers incentives for training to further assist them with retraining for a job and prevent them from falling back on unemployment benefits or pensions.

In addition, employers who hire job seekers under the age of 30 or workers aged 50 or older will share in a redesigned national wage subsidy pool from 1 November 2015. Eligible employers will be granted a subsidy of up to $6,500 for hiring a job seeker under the age of 30, an indigenous job seeker, a parent returning to the workforce, or a long-term unemployed job seeker. They can also receive up to $10,000 under the Restart program for hiring workers aged 50 or older.

Families

The childcare scheme has received a major overhaul to support low income families. Families with access to maternity leave through work will no longer receive government assistance in the form of the existing Parental Leave Pay (PLP) scheme from 1 July 2016. This measure will prevent families from double dipping into both schemes.

Under the new proposals, both parents must do at least eight hours a fortnight of work, training or study to qualify for any childcare support. Families earning up to $65,000 will receive 85 per cent off childcare fees, while stay-at-home parents with a family income over $65,000 will no longer secure childcare subsidies.

A two-year nanny trial starting on 1 January 2016 will assist the parents of approximately 10,000 children, especially those working for emergency services or living in regional areas, without access to regular childcare services.

Rural Australia

Farmers can continue the Drought Concessional Loan Scheme for another year. Farmers will also be able to claim fences and new water storage as tax write-offs.

Call (02) 4926 2300 or email us.

To discuss the 2015 budget and how it will affect you, please do not hesitate to contact the expert and friendly team here at Leenane Templeton.

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Every year, the ATO announces a number of compliance targets that will be subject to additional scrutiny.

It always pays to be aware of these focuses, as non-compliance is, more often than not, the result of an honest mistake as opposed to willful deception. Unfortunately, an honest mistake can still cost you dearly in penalties and/or interest on late payments to the ATO. In the 2014/15 financial year, the ATO will be focusing on:

Personal technology

Deductions claimed for personal technology items such as smartphones, tablets and laptops. Taxpayers who are claiming deductions on such items should ensure that they have adequate documentation to prove the breakdown of personal/work use (for example diary entries). You are only able to claim a tax deduction equivalent to the portion of the use that is professional.

Cash economy

The ATO will be aiming to identify businesses that operate off the books by failing to accurately record their cash transactions. This may involve paying employees in cash (and therefore avoiding minimum wage requirements and the super guarantee) and/or underreporting the business’s profits, thereby reducing the overall tax liability.

GST compliance

The GST compliance program involves ensuring that all businesses that are required to register for GST have done so (that is all businesses with an annual turnover in excess of $75 000). The accuracy of BAS reporting is also under scrutiny.

Travel costs

Taxpayers claiming large deductions in the form of work-related travel costs will be subject to additional examination from the ATO this year. In particular, the tax office has warned that it will be focusing on the validity of deductions claimed for the transportation of bulky tools and equipment.

Call (02) 4926 2300 or email us. 

To speak with one of our expert accountants about upcoming ATO compliance targets please do not hesitate to contact us here at Leenane Templeton. 

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