Property investors are on notice ahead of tax time, with the Australian Taxation Office warning landlords against "dodgy deductions" on their annual returns.
The Tax Office has found the majority of rental property owners have made mistakes on their tax returns, even though 86 per cent of those people use a tax agent.
In one case, a Melbourne landlord was claiming new blinds, a cooktop and air conditioners as immediate deductions, where they should have been claimed over time.
The Tax Office also found the landlord had claimed a second cooktop on their tax return, which was for their personal home.
Their tax return was adjusted and they were issued a penalty and interest.
Australian Taxation Office assistant commissioner Rob Thomson warned property owners not to rely on "things you hear at a Sunday afternoon barbecue".
"We understand rental property owners may already have long lists of things to fix in their properties," he said.
"But by getting your tax return right the first time, you'll avoid having to add 'fix up tax return' to your to-do list down the track."
These are some of the common mistakes landlords are making on their tax returns.
Claiming immediately
Fixing and replacing damaged items is a normal part of owning a rental property.
But there was a common myth among landlords that all expenses to fix or replace items could be claimed immediately, Mr Thomson said.
"A repair can usually be claimed straight away but capital items, think dishwashers, curtains or heaters, can only be claimed immediately if they cost $300 or less, otherwise they need to be claimed over time," he said.
Other expenses that must be claimed over time include improvements and capital works, such as remodelling a bathroom or laundry.
Capital expenses are usually claimed at 2.5 per cent over 40 years, the Tax Office said.
Double dipping expenses
Landlords have also been known to "double dip" on expenses. This is where an expense that has been arranged by the property manager is then included on the property's income and expense report.
"Often, property managers will pay for expenses like repairs from the rent received," Mr Thomson said.
"The amount they then remit to the property owner is net of these expenses. They will also send the property owner a copy of the invoice for their records."
The Tax Office said even if there are two records for the same expense, it must only be claimed once.
Claiming interest incorrectly
One of the most common issues with claiming interest deductions is where landlords are redrawing or refinancing and using the money for private expenses, such as a new car or holiday.
Issues arise when the taxpayer then claims the whole amount of interest charged on the home loan for the year as a deduction.
"For example, if you have an $800,000 mortgage for a rental property and then add $50,000 to the loan to upgrade your family car, you can only claim the interest on the initial $800,000, not the interest on $850,000," Mr Thomson said.
Body corporate fees
The Tax Office said landlords can claim deductions for body corporate payments to administration funds and general-purpose sinking funds at the time they occur, as long as the fees are for routine maintenance of common property.
Special levies for a particular capital expenditure, such as replacing a roof, can not be deducted until the works are complete.
A special exemption for ACT landlords
Stamp duty can not be claimed as a deduction while an owner rents out a property, except in the ACT where stamp duty is considered a lease document expense.
Borrowing expenses that can be claimed anywhere in the country include loan establishment fees, lender's mortgage insurance and title search fees.
These expenses, the Tax Office said, are commonly claimed incorrectly.
If the total borrowing expenses exceed $100, the deduction must be spread over five years or the life of the loan, whichever is less.
"You need to keep these records until you sell, when the amount will be added to your cost base to reduce any capital gain you may have on the sale," the Tax Office said.
