You've been targeted The Tax Office has put work expenses and investment property at the top of its hit list. In 2003-04, the Australian Taxation Office selected 750,000 taxpayers out of 11 million for compliance action. The days of the full-blown audit, where an ATO officer pays the taxpayer a personal call, are now mostly reserved for businesses. For individuals, compliance action is more likely to require answering questionnaires and requests for further substantiation. Automated data cross-checking means the ATO is very efficient in identifying the areas in tax returns that taxpayers are getting wrong. And each year the ATO signals where it is going to concentrate its compliance activity. As in the previous few years, rental property deductions feature at the top of the ATO list of 2005-06 targets, along with work-related deductions. The property boom of 1997 to 2003 caused the portion of households owning investment property to increase to about one-in-eight households from one-in-15. Investment property
Many property investors negatively gear; that is, the rental income is less than the interest payments on the mortgage and other costs of maintaining and managing the property. Investors then claim the shortfall as a deduction against their salary and other income to reduce the tax they pay.
In 2002-03, negative-gearing tax deductions on rental properties came to almost $15 billion. They reached almost $18 billion in 2003-04 when many taxpayers made claims for rental property deductions for the first time. The ATO continues to find that many landlords understate rental income or over-claim deductions. Many landlords claim the interest costs on their borrowings for the whole year, even if the landlord uses the property for some of the time for private purposes. A claim can be made only for that portion of the year when the property was rented or available for rent. Another hot spot identified by the ATO is claiming initial repair or renovation costs as maintenance costs. Bembrick says these are capital costs, which cannot be claimed. However, capital costs can be depreciated - the ATO recognises fittings and fixtures lose their value over time. Bembrick says care must be taken with depreciation as each item has a depreciation "life". The ATO has a schedule of more than 150 items for which depreciation can be claimed. It says landlords need to keep comprehensive records when buying and selling an investment property and of all rental income and expenses. The ATO has a Personal Tax Record Keeper on its website, aimed at making it easier to keep accurate and up-to-date tax records for rental properties. Go to ato.gov.au and, in the search box on the top right-hand side, type "personal tax record keeper". 31st May 2006 Source: SMH | 
