Ian Abbott owns 4 investment properties and works as a property construction manager.

In his 2022 income tax return he had claimed allowable deductions in respect of his investment properties as well as work related and travel expenses relating to his occupation as a construction manager.

Ian's 2022 tax return was lodged on time. A notice of assessment was issued 10 days later by Australian Tax Office (ATO) agreeing with what he had lodged. 

However, after 8 months the ATO carried out a desk audit on Ian's 2022 tax return and made the following adjustments to his original tax return:

The ATO disallowed the following expenses:

• Repairs of $23,500 claimed on the rental properties on the basis they were improvements;
• Interest of $75,000 on the investment loans on the basis that the loans were secured against his family home and not the investment properties;
• Motor vehicle expenses in relation to his occupation as the claimed percentage of 80% was too high.

 

This resulted in a higher tax liability rather than refund of tax.

Ian advises you of the following:

The amount spent on repairs was for repainting three of the four investments properties because of damage caused over the years by the sun and rain as well as replacing rotting timber weather boards.

The family home was offered as security to the bank for the loans as that was a condition of the bank, otherwise they would not have provided the loans to buy the investment properties.

In his occupation as a construction manager Ian has to travel between various building sites. He did not keep a detailed log book of the kilometres travelled but estimates it would be at least 4,000 to 6,000 kilometres.

1. Whether the deductions claimed by Ian but disallowed by the ATO are allowable deductions.