The tax office says it is cracking down on landlords who are over-claiming tax deductions, after a recent review found nearly nine out of 10 landlords made mistakes on their annual returns and incorrectly claimed expenses.
As well, the Australian Taxation Office (ATO) has announced its other key focus areas will be on those don't declare income from short-term rentals such as Airbnb or Stayz, and those who over-claim work-related expenses.
The ATO received $89.6 million in last week's budget for the crackdown, and Treasury received $1.2 million. The budget papers suggest this extra funding is expected to increase the agency's receipts by almost $475 million over five years.
ATO Assistant Commissioner Tim Loh said about 87 per cent of individual rental owners use a registered tax agent to prepare their income tax returns, and encouraged agents or those who prepare their own tax returns to take greater care.
He said the ATO often sees rental income being left out, or mistakes being made with property-related deductions, including people over-claiming expenses or claiming for improvements to private properties.
The agency says it is focused on ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes, or where the loan was re-financed with some private purpose.
"You can only claim interest on a loan used to purchase a rental property to earn rental income," Mr Loh said.
"Don't forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income."
Rent out your home on Airbnb? You may need to pay CGT
The agency also warns that capital gains tax (CGT) applies when a taxpayer disposes of assets such as shares, crypto, managed investments or properties.
Cryptocurrencies are growing in popularity, with about 800,000 Australians investing in them over the past few years.
The ATO urged taxpayers to keep records of the income-producing period and the portion of the property used to produce income to calculate their capital gain.
"Generally, your main residence is exempt from CGT, however if you have used your home to produce income, such as renting out all or part of it through the sharing economy — for example Airbnb or Stayz — or running a business from home, then CGT may apply," Mr Loh said.
ATO says there are too many incorrect claims for work expenses
Each year, eight-and-a-half million Australians claim about $20 billion worth of work-related expenses, many of which relate to working from home. The average claim each year is about $3,000.
As ABC has previously reported, a change to the way Australians claim back tax deductions for working from home could leave some taxpayers with lower deductions.
Previously, taxpayers could choose from a number of different methods to calculate how much they could claim when working from home.
Those methods have now changed and there are limits on what expenses taxpayers can claim.
Mr Loh warned: "don't be tempted to just copy and paste your prior year's claims".
"We know a lot of people are working back in the office more compared to last year," Mr Loh said.
"This year, the ATO is particularly focused on ensuring taxpayers understand the changes to the working from home methods and are able to back up their claims."
He emphasised the importance of keeping good records that substantiate claims.
