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ATO targets holiday rent ‘losses’

AUSTRALIAN BUSINESS REVIEW   January 25, 2019   Michael Roddan

The ATO has found many holiday-home owners are claiming deductions when their properties are not available to be rented, or when it was being used by their own family or their relatives and friends free of charge. Picture: Istock

The tax office is aiming to claw back close to $1 billion in wrongly claimed personal deductions, with a focus on negative gearing deductions for holiday homes over the next four years.

The Australian Taxation Office has found incorrectly claimed rental deductions are one of the major contributors to the annual $9bn tax gap — the difference between what the ATO should collect and what it does.

In the 2018 federal budget, the ATO received $130 million over four years to increase its surveillance of personal tax deductions, which will focus on rental deductions. It is estimated this will boost revenue by $1.1bn. Losses made on rental properties can be claimed to offset an income-tax bill under the government’s negative gearing laws.

However, the ATO has found many holiday-home owners are claiming deductions when their properties are not available to be rented, or when it was being used by their own family or their relatives and friends free of charge.

The ATO has also discovered deductions are being claimed for holiday homes that are not available for rent, and that are advertised only by word of mouth or outside of holiday seasons. At other times, homes are inaccessible or advertised with sky-high rents that reduce the likelihood the property would ever be rented.

An ATO spokesman said these factors indicated the owner did not intend to earn income from the property and might be reserving it for private use.

“We are aware some holiday-home owners are doing the wrong thing and claiming deductions that they are not entitled to,” he said. “Over the past year we have expanded our focus on incorrectly claimed rental deductions.”

Deliberately rorting the tax offsets can attract a penalty of as much as 75 per cent on top of the wrongly claimed deductions.

Labor has proposed grandfathering negative gearing tax breaks and only giving new properties access to the tax deductions in a policy forecast to raise $20 billion over the next decade.

Treasurer Josh Frydenberg has warned repeatedly that Labor’s proposal would damage the housing market and the economy.

Deloitte economist Chris Richardson said $1bn over four years wasn’t “huge” considering rental losses ran to more than $20bn a year. “But it’s no surprise the ATO is chasing the money,” Mr Richardson said.

He said the claiming of rental losses was likely to increase as more landlords came under financial pressure because rental incomes had stalled, meaning people would be “more likely to cheat” on their tax returns.

PwC Australia chief economist Jeremy Thorpe recently warned Labor’s proposals would have a magnified impact on holiday homes, as the market was “almost entirely” made up of people who would negatively gear.

The ATO is crossmatching data provided by online rental websites against tax records and state and territory bond boards to identify taxpayers who may be incorrectly making deductions.

Because of steep interest rate rises on investor and interest-only loans, the cost to the budget of negative gearing tax breaks for investment properties is estimated to have jumped by $1.6bn a year.

Under current negative gearing rules, interest payments on mortgages are tax deductible.

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