Make sure to retain evidence of your mortgage
Have you borrowed money for maintenance and improvement of your own home? Make sure to keep the written evidence for improvement and maintenance for at least 30 years. You may lose the right to the mortgage-interest tax relief if you are unable to prove, based on documentary evidence, that the loan was used for maintenance and improvement of your owner-occupied home. This follows from a decision of the Supreme Court.
When entering a deductible item, the burden of proof is vested in the taxpayer. This is no different for the deduction of mortgage interest, which is commonly a major deductible item for private individuals. This deductible item usually runs over many years. Supplying proof of the mortgage when purchasing the owner-occupied home is generally not very difficult. However, things may be different in case of subsequent renovations. Especially when they are financed with other loans, for example a revolving credit or a loan with a non-banking institution, such as a loan from your own private company. An increase of the owner-occupied home debt in relation to improvement and maintenance must be supported by written documentation.
Entrepreneurs are obliged to keep the financial details for 7 years, yet for private individuals there is no legal obligation to retain administrative documents. However, the tax authorities may claim tax back up to 5 years (and even longer if a deferment for filing the tax return has been granted).
In a recent decision, the Supreme Court ruled that the tax inspector may request evidence for the owner-occupied home debt as long as the interest on the debt has been entered as a deductible item. The issue was that it did not follow from the law that the inspector had to request written proof of maintenance and/or improvement within the five-year additional-assessment period. And it made no difference that the inspector had accepted the declarations in other years.
This decision shows that even after the five-year period has elapsed, the tax authorities may still request evidence as long as the deduction of interest is claimed.
Therefore, make sure to keep your documents with regard to which you claim a deduction not just for five years, but keep them for at least as long as you enter the mortgage interest as a deductible item.