Professionals Real Estate 
Tax gaps are an issue in most countries, and Australia is no exception. The Australian Tax Office (ATO) estimates it is owed multiple billions of dollars from businesses and individuals, and is working on reducing this amount.
One area it believes it is missing out on funds is investment properties, with the rental component of Australia’s net tax gap reported to be $1.3 billion.
In other words, many rental property owners are believed to be underreporting the money they make from their properties, which means there is a gap between what’s owed and what is being collected.
The ATO has the power to check investors’ financial activity through data matching, obtaining information from banks and financial institutions. It also recently announced it will collect rental bond data, use the information to match tenants with landlords, and then identify omitted or incorrect reporting of income.
Here’s where landlords are making mistakes when it comes to tax and how to avoid scrutiny from the ATO:
ATO reporting: Where property investors are going wrong
Owning a rental property comes with the responsibility of financial and tax management. In addition to paying bills and fees associated with your investment property, you need to be aware of which expenses can be claimed and which parts of your income qualify as taxable.
When it comes to income reporting, common mistakes landlords make include:
- Missing lodgements: Failing to lodge a tax return related to the rental property
- Missing money: Failing to report all rental income
- Overstating deductions: Claiming more than is allowable for expenses, such as maintenance costs or interest on loans
- Having inadequate records: Not being able to prove spending and earning activities in relation to the property
It is easy to get things wrong, especially if you are an overseas resident or you have been leasing an investment as a holiday property a few times per year. However, when you file your tax return, the ATO doesn’t distinguish between intentional and unintentional errors. Unfortunately, making mistakes may lead to penalties.
How to simplify rental property tax compliance
There are two professionals who can help you avoid ATO scrutiny. The first is your tax accountant, who can help you prepare and submit an accurate tax return.
The second is a skilled property manager. In addition to managing tenants and dealing with maintenance requests, a quality property manager ensures every financial transaction related to your rental property is properly documented and the information is stored correctly.
This includes:
- Itemised rental income: A property manager will collect rent and ensure payments are accurately recorded and traceable.
- Detailed expense records: Property managers are also involved in keeping receipts and itemised reports for maintenance and repairs so you can easily and confidently claim them as tax deductions.
- Regular statements: You will have access to detailed statements of income and expenses, which you can share with your accountant before they work on your tax return.
Property managers also stay up to date with the latest tax regulations and can talk to you about how to legally minimise the tax you pay on your property (for example by obtaining a depreciation certificate). Your property manager can also share tips to maximise the value of your investment so you can charge a premium rent and boost your long-term capital gains.
Working with these two professionals will minimise the confusion and paperwork involved with accurate rental income reporting and help you avoid the stress of being questioned by the ATO.
Need a reliable property manager to help with financial record keeping? Reach out to your local Professionals real estate representative today.
