Landlords to face tax scrutiny as deductions top $24bn

AUSTRALIA'S landlords are set to come under more intense scrutiny from the Tax Office this year, after annual tax deductions claimed on investment properties surged to $24 billion.

Nurses, doctors, chefs and company executives are also on the Tax Office's rorts "hit list" for the coming round of 2007-08 income tax returns.

Singling out landlords, the Tax Office yesterday released figures showing annual deductions claimed by more than 1.5 million Australians on their investment properties have reached $24 billion - more than double the amount reported a decade ago.

Economists say the resulting annual drain on tax revenue has climbed to about $5 billion.

Most of the landlords' deductions relate to interest on investment property loans. Landlords are also able to claim property maintenance expenses against their income.

The Tax Office's second-in-charge, Jennie Granger, said that from 2004 to 2006, the number of taxpayers with rental properties had increased by 100,000 to 1.6 million. Ms Granger said the Tax Office would be targeting people who have been in the investment property market for some time, and have made unusually high claims for interest expenses and other deductions.

Common errors by landlords included claiming on properties not genuinely available for rent, over-claiming for properties rented for only part of the year (such as holiday homes) and over-stating interest claims on loans taken out to buy, renovate or maintain rental properties.

In a speech in Sydney, Ms Granger said the Tax Office had completed more than 6800 reviews and audits of rental property claims this year, with $8.6 million in owed revenue identified, and $5.6 million collected.

Other areas to come under closer scrutiny include:

â–  Work expenses. The Tax Office says six out of seven employees claim work-related expenses (with nine out of ten in higher income brackets making claims). It will contact more than 380,000 people before they lodge returns, with a focus on nurses (claims for self-education), medical practitioners (travel and entertainment) and chefs (travel between home and work, and pre-vocational courses).

This year, 17,000 reviews and audits of work expense claims have been done, resulting in $14.2 million in revenue owing, and $9.3 million paid so far.

â–  Salary packages of executives and directors (mainly people earning more than $1 million a year). In 2007-08, 175 executives and directors were asked by the Tax Office to complete a questionnaire. Of $20.7 million assessed as owing, about $15.3 million has been paid.

â–  Dividends and interest investment income and expenses, including money earned overseas. More than 160,000 reviews and audits have been completed, and 20,000 are in progress. So far, $123.5 million in owed revenue has been identified, and $82.9 million has been collected.

â–  People failing to declare capital gains tax from the sale of their investments.

â–  Dodgy tax minimisation schemes and other tax scams.

â–  Superannuation and self-managed super funds. Those saving for retirement who may have to pay a super contributions tax or capital gains tax (if they sold assets to invest in super).

â–  Small businesses and tax havens will also continue to be monitored.

www.theage.com.au
Nassim Khadem, Canberra