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Property investors have continued to struggle with tax changes to travel deductions and depreciation claims for residential properties in 2018 despite the rules kicking in one year earlier.
Property tax changes the ‘biggest irritant’ in 2018
24 December 2018
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7 minute read
In November 2017, the government introduced new rules around tax deductions for travel expenses associated with residential property investments, and restriction of deductions for depreciation of items in residential rental properties, with a retrospective application from 1 July 2017.
Speaking to Accountants Daily, H&R Block director of tax communications Mark Chapman said the new rules were a major “irritant” for taxpayers in 2018, many of whom were oblivious to changes.
“Both measures came into force in 2017 but many affected taxpayers only really got to grips with the implications when they came to do their 2017/18 tax return this tax time and discovered claims they were expecting to make were no longer available,” said Mr Chapman.
Mr Chapman had earlier said that many clients were confused by the new rules because there was still a provision to claim travel on a tax return.
“Some additional confusion’s been caused, particular in relation to the travel, because if you actually look at the tax return, there is still a box there where you can claim travel, even though the law says you can’t, and I think that has tripped up some people,” Mr Chapman said.
“The ATO have got a real focus on property investors at the moment. They believe that some property investors are claiming excessive deductions or claiming for things that they’re not entitled to at all.”
In November, the ATO expressed concern over possible slip ups, and called on tax agents to remind clients about the new rules.
“If your clients have already incorrectly claimed deductions for the cost of travel to and from their property in their 2018 tax return, they will need to request an amendment,” said the ATO.
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- The label to claim travel expenses for rental properties remains in the individual return form because travel expenses are still deductible post-1 July 2017 for commercial properties, and where the taxpayer is carrying on a business. Easy to see how this leads to confusion but this is why tax agents play such an important role in explaining changes to their clients.
As for taxpayers not realising there were changes to rental property claims until they came to prepare their 2017-18 tax returns, again, easy to see how taxpayers could have missed the Budget announcement on 9 May 2017 and the passage of the amending legislation through Parliament, but tax agents should have been explaining this to their clients along the way.
This is why it's so important for tax practitioners to be across tax policy as it's being developed, so they can keep clients abreast of new developments as they happen. I recognise this is increasingly difficult in the current environment where there are such long delays (in some cases, years) from the date of announcement of a tax measure to its enactment as law, which usually always differs to its effective start date.0- Your response suggests that you do not prepare tax returns. You imply that an individual's claim for travel expenses relating to a commercial property would be at the same item on the return as their claim for travel expenses relating to their business of renting out property. This is not correct. Not everyone who is knee-deep in the detail of tax return preparation has the luxury of time to be involved in monitoring the progress of legislation. Also, not everyone who wants to be able to tell the correct time wants to spend their time learning how a watch works.0
- How if your job is being knee deep in tax return preparation can you not be across the current legislation?0
- My point was not that the tax return preparer should be permitted to be ignorant of the current law because they are just too busy. Ignorance of the law is not an excuse. My point was that tax return preparers don't have the time to monitor the progress of legislation over the long periods that it can take. If the tax return preparer read the instructions for preparation of the individual tax return (and understood them) then that should suffice. I think that the ATO accepts that if you rely on its instructions then you are protected from penalties for getting it wrong. I personally don't know many people (including tax agents) who read those instructions.0
- You are incorrect in your assumption; I have prepared/do prepare tax returns. I did not imply that "an individual's claim for travel expenses relating to a commercial property would be at the same item on the return as their claim for travel expenses relating to their business of renting out property" - these are your words.
It is possible under the law for a taxpayer to own a commercial rental property and for it not to be in the course of carrying on a business. Travel expenses in relation to commercial properties where the taxpayer is not carrying on a business are not non-deductible (if the taxpayer is carrying on a business, travel expenses are already excluded from the new measures and remain deductible). Accordingly, where the taxpayer is not carrying on a business, the commercial property travel expenses would be claimed at the travel expense label in the rental property schedule, as I suggested.
Re: monitoring the status of legislation, I accept taxpayers don't do this but tax practitioners need to be across this, and that includes reading relevant ATO guidance.0
- I think you are missing the point of the article. It's not directed at tax agents so much, but rather as a generic concern about taxpayers who are self-lodging - see the constant references to taxpayers. Now sure, there's been plenty of media attention on this issue but you can easily imagine the average taxpayer who is filling out their own return seeing a box marked specifically as "travel" on their return, and going "oh good I must be able to claim this still".0
- I have not missed the point of the article. My point was that where there are law changes, there is an important role for tax agents to play in educating taxpayers and explaining the changes, so that there are no surprises when tax return season comes around. This article supports the argument that taxpayers should be seeking tax advice from professionals, particularly when it comes to more complex tax affairs such as rental properties.0
- Yes what an irritant it is that Australian taxpayers no longer have to fund interstate holidays for the 'rental inspection'.0
