RENTAL INCOME AND EXPENSES Last year around 1.4 million taxpayers declared total rental income of $15.2 billion and claimed rental deductions of $17.8 billion. While rental income was up by about 12% on the previous year, rental deductions claimed were up by 19.5%. The percentage of taxpayers reporting losses on rental investments continues to increase. We are increasing our compliance activity in this area to ensure that these taxpayers are doing so in accordance with the law. Individuals need to keep comprehensive records when buying and selling an investment property and for all rental income and expenses. The personal tax record keeper, available as a free download from our website, makes it easier for individuals to maintain accurate and up-to-date tax records for their rental property. We generally do not seek additional information from individual taxpayers where gross rent and deductions are in line with industry norms. We will send educational letters to 100,000 taxpayers who entered the rental market last year to ensure they understand how to declare rental income and claim deductions correctly. We will also send advisory letters to 45,000 taxpayers where we have concerns, to remind them to check the accuracy of their claims before they lodge their return. We continue to find that many individuals understate rental income or overclaim rental deductions by, for example: Overstating interest deductions by including amounts related to borrowing expenses. Claiming deductions for a property that is not genuinely available for rent, or not claiming partial deductions where a property is rented for only part of the year Claiming initial repair or renovation costs as repair and maintenance costs rather than correctly attributing these to the capital cost of the property Incorrectly apportioning deductions related to private borrowings or travel Incorrectly claiming deductions against rental income for legal and other costs that should be treated as capital expenses, and Not declaring all rental income – we obtain information from state revenue offices on investment properties, holiday houses and units to help us to identify relevant taxpayers. This year we expect to conduct around 6,000 risk reviews, which should lead to 3,600 audits of high-risk cases.
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