Recent ATO Focus: Payment Plans and Rental Property Deductions

by | May 14, 2024

In a time of increased oversight and stricter regulations, the Australian Taxation Office (ATO) is emphasising that tax reliefs like payment plans should be accessed only by those who truly need them. Additionally, the ATO is keeping a close watch on deduction claims for rental properties. This article explores the ATO’s latest guidelines, offering crucial information for taxpayers to ensure compliance with tax laws. 

Tightening of Payment Plan Eligibility 

The ATO has observed an increasing trend where tax professionals secure payment plans for clients who might not truly need them. Sylvia Gallagher, ATO Assistant Commissioner, emphasises that these plans are intended as a support mechanism, not a financial loophole. During a recent webinar, she explained that the leniency shown during the pandemic era is tightening. Payment plans will now be scrutinised more closely, with the ATO evaluating the taxpayer’s genuine capacity to pay on time. The message is clear: those who can pay should do so without delay. 

Increased Scrutiny on Rental Property Deductions 

Errors in tax returns for rental properties are alarmingly common, with the ATO finding that 90% of such returns have mistakes, primarily around deductions for repairs and maintenance. Assistant Commissioner Rob Thomson pointed out that many landlords fail to differentiate between immediate deductions for repairs and capital improvements that should be depreciated over time. For instance, replacing a broken window can be claimed immediately, but upgrading to a modern kitchen constitutes a capital improvement and is not deductible as a repair. 

Consequences and Compliance 

Non-compliance with tax obligations can lead to significant penalties and General Interest Charge (GIC). The ATO is not just watching for late payments but also improper claims of GIC remission after a payment plan is concluded. The ATO’s guidelines, specifically PS LA 2011/12, outline the conditions under which GIC remissions are appropriate, focusing on factors like whether the taxpayer had control over the delay and took steps to minimise the payment duration. 

Support and Resources for Compliance 

The ATO offers numerous services to aid taxpayers, particularly small businesses, in maintaining compliance. Keeping lodgements and payments up-to-date is crucial not just for avoiding penalties but also for ensuring that the ATO can provide timely assistance when a business is genuinely struggling. The ATO encourages taxpayers to engage with these services rather than avoiding contact, which can lead to misunderstandings about a taxpayer’s circumstances. 

Practical Tips for Taxpayers 

Taxpayers are advised to: 

  1. Review their eligibility for payment plans and ensure they only apply if there is a genuine need.
  2. Accurately report repairs and maintenance for rental properties, distinguishing between deductible repairs and capital improvements.
  3. Keep accurate and comprehensive records to facilitate correct tax return preparation and to substantiate claims if reviewed by the ATO.
  4. Consult with registered tax agents to ensure compliance and optimisation of tax obligations.

Understanding and complying with ATO guidelines is crucial for all taxpayers. With the ATO tightening regulations around payment plans and rental property deductions, it is more important than ever to ensure that all tax affairs are in order. By adhering to these regulations, taxpayers can avoid penalties and ensure they are using all available benefits correctly. 

Next Steps 

Review your tax strategies and ensure they align with the latest ATO guidelines. Consider consulting a tax professional to review your circumstances and ensure your tax filings are accurate and optimised. Remember, proactive engagement with the ATO can prevent many issues before they arise, keeping your financial obligations smooth and manageable. 

We’re here to help  

Elevate your property financial strategies with Chan & Naylor Pymble. Our team of highly experienced business and property accountants is here to guide you on your journey to financial growth and generational wealth. With our expertise and tailored solutions, we can help you navigate complex tax regulations, optimise your investment portfolio, and unlock the full potential of your business and property investments. Don’t wait any longer to secure your financial future. Contact Chan & Naylor today to schedule a consultation and start building the path to success.  

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This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.