Avoidable tax return errors

Property investors have historically been targeted by the ATO, and if you are a first-time investor, it is important that your tax returns are accurate.

Some common mistakes made by property investors, as identified by the ATO, include:

• Claiming rental deductions for properties not genuinely available for rent
• Incorrectly claiming deductions for properties that are only available for rent for part of the year, such as holiday homes
• Incorrectly claiming structural improvement costs as repairs when they are capital works deductions, such as re-modelling a bathroom or building a pergola
• Overstating deduction claims for the interest on loans taken out to purchase, renovate or maintain a rental property

Another area where first-time investors can make errors is tax depreciation.

The benefits associated with tax depreciation are very significant, as they can be equivalent to 60 per cent of the total purchase price of the property. In some cases these tax benefits could total $300,000, based on a purchase price of $500,000.

To qualify for these legitimate tax deductions, an investor must have a fully compliant tax depreciation company undertake an on-site inspection of the property and then compile a depreciation report.

Estimates of tax depreciation benefits made from an office desk will not be accepted by the ATO.

Depreciation is a complex area of taxation that requires a professional company to undertake a depreciation report, because of constant changes in rules.

Property investors should check that the company undertaking their tax depreciation schedule is a member of The Australian Institute of Quantity Surveyors (AIQS).

The AIQS is the professional standards body for quantity surveyors throughout Australia, and enjoys a close working relationship with the ATO.

Over recent years, the AIQS has worked with the ATO on the review and revision of the requirements for investment/rental property depreciation reporting.

DEPPRO is an Associate Member of the AIQS and uses systems that are fully compliant with ATO rulings.

Property investors should understand that tax depreciation is complicated, like other areas of finance or tax, so it is essential that property investors get the right advice.

For depreciation professionals, having the appropriate training and qualifications and being a member of organisations such as the AIQS is critical in ensuring you can provide the best advice for your clients.

Otherwise, it is impossible to keep up to date with legislative requirements. Companies whose representatives are not members of AIQS are also not bound by any code of professional conduct.

Property investors should be wary of companies that are not members of AIQS, and that employ salespeople who tout catch-phrases and have a dubious approach to providing advice in relation to tax depreciation entitlements.

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