Property managers have a golden opportunity to position themselves as trusted advisers after the taxman created a hit list of worrying rental property deductions.
The Australian Taxation Office has identified four areas of concern, involving holiday homes, spouses, repairs and loans.
BMT Tax Depreciation chief executive Bradley Beer told RPM that property managers should play a role in helping their clients comply with tax rules.
“As a property manager, make sure you suggest to clients that they get the appropriate specialist in to help them out with making proper deductions,” he said.
The first problem area for the ATO is excessive deductions being claimed for holiday homes, particularly since deductions can only be claimed for the periods the property is rented out or genuinely available for rent.
The ATO also noted that deductions should be limited to the amount of income earned by landlords when the property is rented to family or friends below market rates.
Mr Beer said property managers with a lot of holiday homes under management should ensure landlords are actually using such properties for holiday purposes.
“As a property manager you should be making sure you’re keeping the records correct with who stayed there, what dates and everything like that,” he added.
The second area of focus for the ATO is husbands and wives inappropriately splitting rental income and deductions for jointly-owned properties.
The ATO noted that some people have even included the income in the low income earner’s returns and the deductions in the high income earner’s returns.
The third problem area is claims for repairs and maintenance shortly after a property was purchased.
These are commonly referred to as ‘initial repairs’ and are generally capital account and therefore not deductible.
“If landlords are making improvements, they can still claim deductions, but they’re capital improvements so they need to be depreciated, which is where quantity surveyors come in,” Mr Beer said.
The fourth area is interest deductions being claimed for the private proportion of loans.
According to the ATO, interest expenses incurred with respect to a rental property are only deductible to the extent that the property is being used to produce rental income while any interest expense referrable to any private use of property is non-deductible.