ATO targets property investors’ and holiday homeowners’ income and deductions

Taxpayers have just three weeks to get their house in order, especially the 1.8 million who own investment and holiday properties, the Australian Taxation Office is warning.

Homeowners who have converted a room into a home office or rent bedrooms to long-term boarders or tourists are also going to have their gains and deductions closely scrutinised, the ATO says.

Kath Anderson, ATO assistant commissioner, says it will monitor taxpayers who rely on tax agents, used by about 66 per cent of those submitting a return, who might be amenable to providing more deductions and bigger claims than they are entitled to.

“We have sophisticated systems that can match data from hundreds of sources,” says Anderson about how the ATO identifies mistakes, exaggerated claims or fraud from 9.6 million personal tax returns.

ATO assistant commissioner Kath Anderson warns of a focus on taxpayers who shop around for tax agents

ATO assistant commissioner Kath Anderson warns of a focus on taxpayers who shop around for tax agents

Investment property

The ATO will “be paying close attention” to excessive interest rate claims, such as where property owners try to claim borrowing costs on the family home as well as rental properties, says Mark Chapman, communications director at H&R Block.

A focus will be incorrect apportionment of rental income and expenses between joint owners, such as where deductions on a jointly-owned property are claimed by the owner with the higher taxable income, rather than jointly.

Investors are on notice about making incorrect claims for newly purchased rental properties.

“The costs to repair damage and defects existing at the time of the purchase or the costs of renovations cannot be claimed immediately,” says Chapman.

“These costs are deductible instead over a number of years. Expect to see the ATO checking such claims and pushing back against those that do not stack up.”

Brad Beer, chief executive of BMT Tax Depreciation, adds: “While rules state second-hand residential property owners cannot claim previously existing plant and equipment, they can claim on items they purchase and install in the property themselves after it is income-producing.”

Airbnb landlords are eligible for deductions for expenses but the claims must relate directly to earning of income and will require receipts or records as evidence.

“Don’t forget, the ATO has access to numerous sources of third party data including access to popular holiday rental listing sties such as Stayz and Airbnb, so it is relatively easy for them to establish whether a property was ‘available for rent’,” adds Chapman.

Holiday homes

Holiday home owners are a key target of the ATO, particularly those not making genuine attempts to make their properties available for rent.

Anderson cites a Victorian holiday house owner who earned about $27,000 rent during 2014-15 but claimed expenses of more than $700,000.

She says problems arise if property owners try to claim 100 per cent of expenses for times when their properties are routinely rented to mates at below market rates, are not available for rent during peak holiday periods and are deliberately unoccupied for about 90 per cent of the year. Others are leased under conditions that deter renters, such as unattractive minimum night stays, banning golfers or women who wear stilettos.

Anderson recommends those with home offices keep invoices, receipts, claims and diary accounts to prove spending on meals, mobile phone and internet costs that are work, or business, related

She says the ATO is aware of abuse of concessions by people claiming all their mobile phone, laundry, internet or dining expenses when they represent only a portion of total expenses relating to work or business and the rest is private.

Some people are also abusing the record-keeping provisions, which includes popular work-related car expenses claimed by nearly 4 million taxpayers, totalling nearly $9 billion.

“It is legitimate to claim for 5000 kilometres if you actually do them as part of earning your income,” says Anderson. “But we are concerned some taxpayers mistakenly believe this is a standard deduction they are entitled to, without having to provide any evidence of having travelled that distance.”

The ATO compares taxpayers to others in similar occupations earning similar incomes to identify work travel, or trips, not required as part of their jobs, she says.


Cryptocurrencies such as bitcoin are assessed for tax purposes as a form of property that are an asset for capital gains tax purposes.

The ATO is working with banks, AUSTRAC and state revenue offices (which collect revenues) to identify suspicious activity, particularly for property transactions.

The movement of cryptocurrency is anonymous but becomes traceable when converted into a fiat currency.

“While many believe cryptocurrency provides anonymity, operating in the digital world leaves electronic footprints,” says Anderson. “We have sophisticated systems that allow us to match data from banks, financial institutions and online exchanges to follow the money back to the taxpayer.”

Liz Russell, a senior tax agent for, says losses on trading cryptocurrency can offset that amount from capital gains made on another asset in the same, or later, financial year. But net capital losses cannot be offset against other income. It is taxable when sold.

Holding cryptocurrency for more than 12 months as an investment might entitle the holder to a CGT discount.

“Whether it is a long-term investment or a short-term trading strategy, the potential tax consequences require taxpayers to keep records,” warns Anderson.

Cryptocurrency payments for goods and services need to be recorded as ordinary income.

Family trusts

Family trusts are an increasingly popular structure for holding a family’s investments, including property, shares and other assets, excluding the family home. Recent tightening of the superannuation rules is adding to their attraction.

All trust members’ income is to be provided for the current financial year and usually an estimated income statement for the next. It is advised an accountant recommend the most tax-efficient ways to distribute any income.

Bill Nussbaum, a director at HLB Mann Judd, says: “The main thing is to work out how the income from the trust is to be distributed to the beneficiaries of the trust for this financial year. Trustees need to speak to their accountant about how the income from the trust will be paid, such as dividends, payments from a business or interest.”

The trustee also has to make a formal resolution to the ATO in writing about the distribution before June 30, he says.

Advises say the “ideal” scenario for maximising distributions to beneficiaries is when there is a spouse paying little or no tax and young adult children who are not yet earning much. The tax on distributions to children is punitive, typically around 47 per cent on anything over about $1300.

NSW budget 2018: Winners and losers

NSW Treasurer Dominic Perrottet has delivered an election budget with many winners and almost no losers.


Motorists: Regular toll users will get free car registration, saving up to $700 per year.

Illegal parkers: Fines cut by 25 per cent.

Caravan owners: Registration savings of 40 per cent, or up to $471 per year.

Parents: A $150 baby bundle for newborns, and a $100 “creative kids” voucher to be spent on music drama, art coding or second language classes. This is on top of the $100 voucher introduced last year for sport activities.

School kids: Every three year old to have access to pre-school classes. 4,800 new pre-school places. 880 more teachers; $6 billion for 170 new and upgraded schools; $50m over five yard for air conditioning in schools.

Apprentices: Free TAFE classes. 100,000 fee-free apprenticeships will be created through a $285 million fund.

The sick: 1,000 more nurses and midwives, 330 more doctors, 750 extra paramedics; $8 billion over four years for health facilities, including $750 million for Liverpool Hospital precinct.

Commuters: 2,000 extra bus services.

Small business: From July 1, the payroll tax threshold will be lifted from $750,000 to $850,000, and will increase by $50,000 a year to reach $1 million in 2021-22.


Bureaucrats: An “efficiency dividend” applied across departments to save $1.6 billion over the forward estimates will mean public sector cuts.

 departments will Online gamblers: A new 10 per cent point of consumption tax expected to raise about $100 million a year.

Criminals: 100 extra police.

Speeding, drunk and drug taking motorists: Will be hit by a new police blitz, raising $40 million per year.

The Sydney councils surging past housing targets

Some Sydney council areas are already pushing past targets for new housing development set only two years ago, prompting the state government to consider new measures to ensure local infrastructure keeps up.

In a week in which the national population surged past 25 million, other figures released this week show Sydney is on track to meet and exceed ambitious targets to house the swelling number of people in the city.

In the Hills Shire in the north-west for example, more than 8600 new homes have been approved since 2016. That is more than the Greater Sydney Commission’s target of 8500 new homes to be built in the area between 2016 and 2021.

Other council areas already pushing up against large housing targets set by the commission, when measured by the number of approvals, include Penrith, Liverpool, the Sutherland Shire, Hornsby and Fairfield.

“We are well and truly over the target,” said Wendy Waller, the mayor of Liverpool. “We’ve got the land available, so we’re very fortunate in that sense.”

But Cr Waller said the council’s challenge was to ensuring roads, parks, and other community infrastructure keep pace with the rapid expansion. And to helping establish the conditions for local jobs, so residents did not have to leave the area for work.

“We probably estimate we are looking at over $270 million just in traffic improvements alone… that’s nasty intersections and reconfigurations and so on,” Cr Waller said.

In the city’s north-west, it is understood the state government is soon to sign off on a new local infrastructure scheme.

The scheme would require new contributions from developers to meet a list of community needs, such as roads, water supply, footpaths and parks.

“Doing nothing to provide housing for our children is not an option,” said the Planning and Housing Minister, Anthony Roberts.

“It is critical that, just as generations before us built homes to house this generation, we need to build homes to house the next generation,” Mr Roberts said.

Michael Edger, the general manager of Hills Shire Council, said the rate of housing development in the area had been “faster than we re used to, and it’s been sustained for a fair period of time”.

“We’re conscious that the growth is faster than what some would like,” said Mr Edgar, who credited the state government’s rail line through the area for much of the impetus. “But we’re working very, very hard to provide the things that we can to accommodate it.”

“They’re not bad problems to have.”

One of the city’s largest housing targets was set for Camden, the semi-rural council area to the city’s south-west.

Two years ago Marcus and Angela Biady were the first people to move into their development, Crest by Mirvac in Gledswood Hills, a 10-minute drive from Leppington station on the South West Rail Link.

“Since we’ve moved in a year later we’ve got a lot of people living here,” said Mr Biady, who said he moved to the area for the back-yard and the rural feel.

“It reminds me of when I was a kid. We hang out at each other’s places. Everyone’s really willing to talk and hang out, which is really nice.”

The Greater Sydney Commission does not use housing approvals as the key measure to see if its targets are met; rather, the commission uses figures for the ‘commencements’ of new houses.

But the majority of approvals eventually become new homes. Developers said the industry was struggling to keep up with housing approvals granted in the past couple of years, though approvals had recently started to fall away.

“Construction activity still hasn’t peaked,” said Nigel Edgar, the General Manager of Residential NSW at Frasers Property.

“You’ll see it peak probably some time in the next six months or so,” said Mr Edgar.

The city’s largest targets for 2021 were set for Parramatta, the City of Sydney, Canterbury Bankstown, Blacktown and Camden.

Almost half of the 21,650 new homes slated for Parramatta by 2021 have already been built.

A spokeswoman for the Greater Sydney Commission said the organisation “happy with the progress councils are making on their five year housing targets and, in a number of cases, they are surpassing them.”

“The Commission is supporting councils to update their housing strategies and local strategic planning statements, which will inform the establishment of 6-10 year targets,” the spokeswoman said.

These local plans are due for exhibit next year.