Property managers’ reports scrutinised as ATO targets rental tax errors

Recently, the Australian Taxation Office (ATO) cautioned tax agents against relying solely on reports from property managers when preparing rental property schedules, seeing a number of issues with claims.

An ATO spokesperson said that while property manager statements were useful records, they were not always prepared with tax time in mind.

“Sometimes the way expenses are described can make it hard for rental property owners and their tax agents to know what can be claimed, and when,” they told REB.

One of the most common issues was when property managers grouped rental expenses under broad labels like “sundry” or “other”, failing to clarify what the money was spent on.

The ATO said this can make it difficult to know whether the expense can be claimed straight away, over time, or not claimed at all.

General labels can also make it difficult for owners to know whether an expense was included in the property manager statement or not.

“A property owner might inadvertently claim the same expense twice as a deduction: once according to the statement, and again as an expense based on the underlying invoice; or not claim the expense at all,” the ATO said.

Other issues have included capital expenses, such as initial repairs, being claimed straight away rather than over time, and expenses being grouped together without sufficient detail.

Additionally, it can be unclear as to whether an expense was claimed when it was billed or when it was paid, while costs incurred during the owner’s private use of the property may mistakenly be included.

According to the ATO, property managers played an essential role in helping landlords get their tax right and should provide clear, complete records that explain what each expense was for.

To ensure accuracy, it said professionals should specify exactly what an expense was for, what work was needed and why it was required, while ensuring they provide invoices, receipts or work orders where possible.

“For more significant renovations and substantial expenditure, include enough detail to help the rental property owners work out whether the cost is a repair, an improvement, or something that needs to be claimed over time,” it said.

While rental owners were ultimately responsible for their tax returns, the ATO said good record keeping would help them reduce the chances of mistakes or follow-up questions.

“Incorrect rental expense claims are a major contributor to the individuals not in business income tax gap, and they contributed an estimated $1.5 billion in 2022–23,” it said.

“Better information helps reduce mistakes and makes it easier for people to get their tax right the first time.”