The ATO says its recent audit activity has identified a high rate of incorrect claims for deductions for personal super contributions in 2008 tax returns. According to the ATO, many of the incorrect claims are attributable to a failure to consider the new legislative requirements now governing this deduction.
You are eligible to claim a deduction if:
- you satisfy the ‘maximum earnings as an employee’ condition
- you meet the age-related conditions
- you made personal contributions to a complying super fund or a retirement savings account (RSA)
- you made the contributions in order to obtain super benefits for yourself, or for your dependants in the event of your death
- you have written to your super fund or RSA provider, in the approved form Deduction for personal super contributions (NAT 71121), and advised them of the amount you intend to claim as a deduction, and
- your super fund or RSA provider has acknowledged your notice of intent and agreed to the amount you intend to claim as a deduction.
The ATO has highlighted common errors it has found in tax returns of property investors, esppecially first time investors.
Incorrectly claiming deductions can be costly.
- Claiming deductions for rental properties not genuinely available for rent
- incorrectly claiming deductions for properties only available for rent part of the year, for example a holiday home
- incorrectly claiming the cost of structural improvements as repairs when they are capital works deductions, such as remodelling a bathroom or building a pergola, and
- overstating deduction claims for the interest on loans taken out to purchase, renovate or maintain a rental property. A loan can be taken for both income-producing and private purposes, like to buy a car or go on an overseas holiday. The interest on the private portion of the loan is not tax deductible.
Advice for claiming rental deductions
There are two categories of rental property expenses you can claim:
- expenses for the year you paid them, like council rates, repairs, insurance and loan interest, and
- expenses that are deductible over a number of years, like borrowing costs, creating structural improvements and costs of depreciating assets.
You cannot claim costs associated with acquiring or disposing of a property, but they may form part of the cost base of the property for capital gains tax purposes.
Renovation costs and costs to repair damage, defects or deterioration existing on purchase cannot be claimed as an immediate deduction. These costs are capital expenditure, depending upon what is repaired or improved, and must be claimed as either decline in value deductions over the assetÃ¢â‚¬â„¢s effective life, or as capital works deductions over 40 years.
More detail can be found in the ATO publication Rental Properties 2007