Late last year, 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 became law and applied retrospectively from 1 July 2017.
Under the new legislation, clients are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property unless they are carrying on a business of property investing or are an excluded entity.
Further, income tax deductions for the decline in value of previously used plant and equipment in rental premises used for residential accommodation are no longer allowed.
Speaking to Accountants Daily, H&R Block director of tax communications, Mark Chapman said these changes have been a “hot issue” for clients, with most of them oblivious to the new law.
“A lot of clients have been coming into our offices without really understanding that they have been affected by those changes and they think they can claim things that they now can’t and a lot of them are not very happy that they can no longer make these claims particularly around travels costs,” said Mr Chapman.
However, Mr Chapman believes the ATO’s message around tax time 2018 that tax agents are making more mistakes than self-prepared tax returns is counterproductive to dealing with new tax changes.
“On the one hand, the government has introduced all these new complex rules and on the other, the only way that people can actually understand how those rules apply is to use a tax agent,” said Mr Chapman.
“It just emphasises that if you’re going to make the system complicated for people, you can’t be too surprised if people then decide to get professional help and that’s actually a good thing.
“We don’t want people still making claims for travel deductions to their property because they don’t realise it has changed and it is the accountant who can provide that guidance and say ‘look, you’re affected by this, you can no longer make this claim’.”
‘Shying away from making claims’
Mr Chapman also believes that the ATO’s report on the $8.7 billion individual tax gap has created a sense of foreboding amongst clients, who are no longer certain if their claims are legitimate.
“A lot of people have seen what the ATO have been putting out and they are nervous now about making work-related expenses claims because they think they are doing the wrong thing,” said Mr Chapman.
“They are often not doing the wrong thing, they are entitled to make these claims and it is part of our job to make sure that we do make the correct claim for them.
“There are people now who are shying away from making claims at all and there are still areas of complexities that people just don’t understand.”