Understanding Interest Expenses and ATO Scrutiny for Landlords
Interest expenses are the most scrutinized deductions by the Australian Taxation Office (ATO), especially for individual landlords. According to the ATO's 'Taxation Statistics 2016-17,' about 46.5% of total rental deductions claimed are for interest expenses, averaging $8,947 per claim in the 2017 income year.
The ATO is vigilant about ensuring that taxpayers don't overclaim interest expenses, particularly targeting those who fail to accurately allocate interest deductions when there are loan redraws for private purposes or if rental properties are used for personal use.
Common mistakes landlords make when claiming interest deductions include:
- Using the property for private purposes, even briefly.
- Using a portion of the loan for personal expenses, either at the loan's inception or through refinancing.
- Using a loan to purchase a non-income-producing home, even if a rental property is used as security for the loan.
- Repaying an income-producing loan ahead of schedule and then redrawing funds for personal use.
If you have any questions or need assistance, feel free to contact Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment through our live calendar.
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