ATO warning regarding tax agents and property deductions

I received a email from the ATO today. It warned many tax agents are continuing to claim travel deductions for rental properties. Wow. I wonder what other mistakes they are making and bad advice they must give. This isnt DIY taxpayers. Goes to show the ATO remain vigilant and have AI that can filter out common risks and overclaiming issues.

recap - After 30 June 2017 ALL travel deductions for residential premises ceased. NOTHING can be claimed and NOTHING can be added to the CGT costbase. Doesnt matter why, how etc. Travel deductions include meals, fares, flights, accomodation, car use etc.

I would also have concerns for their claims for Div 40 depreciation deductions where the property was not a continually rented IP after May 2017. And potentially for repairs and other subjective costs.

 

Our accountant tried to claim depreciation on second hand assets (fixtures, fittings, equipment) on our previous PPOR that was turned into an IP at the beginning of 2018 - it took 3 phone calls, sending on ATO fact sheets and escalating up the chain to convince her that this was no longer allowed.

She was trying to do the right the by us and maximise our return, but I'd rather a lower return than risk a penalty - looking for a new accountant for this year!

(and supposedly this is a firm that specialises in property investors)

 

wow!

 

Couldn't agree more Terry.

By the way Christina, when you go looking for a new tax agent, make sure they are registered. You can check they are at Search the register | TPB

 

Goes to show that many claim to know property tax and dont know jack. What numpties. Wonder what else they will get wrong. Put them to the test. Ask this one (its one of my favoured q's for new tax staff) - My IP I have woned for some time needs a new (steel / tile doesnt matter) roof. Is it deductible ? If they say no or mention depreciation and capital allowances then you know they dont know much about property tax.

That just reminded me of a new thread I was going to post a while ago.....

 

don't worry just doing a demerger for a client at present and im amazed that the other firm we are dealing with should even be involved in the transaction. their lack of knowledge of demerger relief is doing my head in

 

I actually asked my new accountant a similar question last year - deductibility of restoring an old tile roof (clean, repoint & repaint). His answer was that it would be fully deductible as a repair, recommending the invoice clearly state that it was for roof repairs. Is this correct? Or do i have a dud?

 

Repair = deductable/ Replace = Capital Expenditure

 

It is my understanding that the above is not always true.

For example, if one replaces say, one side of the boundary fence (like with like), then it is deductible .

 

I replaced the front fence [only] of my commercial property and it was classed as 'Capital Expenditure' by my accountant and deducted in my CGT when I sold the property 3 years ago.

 

I am not an accountant, so I can’t advise on your situation but my thoughts are maybe the front fence was the complete free-standing structure and you replaced the lot?

I know people who replaced part of their backyard fence (eg one side) due to its damage/deterioration with like-for-like and they claimed it as a repair.

If they had changed the structure of the part being replaced (made it higher) or replaced the whole fence, then it would have been classed as an improvement, not a repair.

 

Seems to be a grey area, my fence was part of the fencing surrounding 3 sides. Doesn't really matter - all worked out in the end ...

 

Correct assuming you have owned the building for a period of time or it relates to a specific storm event etc so that the cost wasnt an initial repair. Even if it was 100% new tiles and timbers its potentially deductible.

The issue of replacement v repair DOES NOT apply in that strict sense to a building or its key construction elements. eg roof, windows, floors, cladding etc

Q : Is the "repair" a part of the building structure ?
A : Yes, a roof is part of the building.

Q : Did you replace the BUILDING ?
A : No. You replaced the tiles. Tiles are a PART of the building and not the whole. Therefore there is no replacement test to consider. The BUILDING was repaired by replacing a key element of the building using similar materials so it was not an improvement.

 

Curious what proof the ATO would require if audited to determine if it was an 'initial repair' vs a fully deductible repair?

 

If they dont beleive you then its a dispute. You have rights to progress it as a objection, appeal and so on. The onus is on you to satisfy them. Initial repairs dont have to be evident when you acquire either and blcoked sewer as a great example. The root issue may be years old and these things may be detected a year later. A building inspection report that doesnt show any such defect may support your view it occurred recently but not always (eg the sewer). Now if the sewer is damaged by a delivery truck that could be suitable proof (picture) This is a big audit focus for the first year or two of a property life. Sometimes even longer. There inst a time limit.