The Australian Taxation Office (ATO) has intensified its focus on the tax affairs of millions of landlords, targeting those who may be falsely claiming rental deductions or minimizing their capital gains tax (CGT) liabilities by inflating costs. This crackdown comes as the ATO expands its data matching program, now set to collect extensive property management data over a seven-year period, covering the financial years from 2018–19 to 2025–26.
What Does This Mean for Landlords?
The ATO’s expanded data matching initiative will require property management software companies to hand over approximately 2.3 million user records. This data will be used to identify discrepancies in tax returns, improve risk models, and educate taxpayers about their obligations. The ATO is particularly focusing on the following areas:
- Failure to Lodge Tax Returns: Landlords who have not lodged their tax returns or rental property schedules on time will come under scrutiny.
- Incorrect Income and Deduction Reporting: The ATO is on the lookout for landlords who have omitted or incorrectly reported income and deductions related to their rental properties.
- Capital Gains Tax (CGT) Reporting: Another key focus is on landlords who may have omitted or inaccurately reported cost base elements, which are essential in determining the net capital gain or loss when a rental property is sold.
The Scope of Data Collection
The data collected by the ATO will include detailed information on both residential and commercial properties. This information covers:
- Property Owner Identification: Names, dates of birth, addresses, and contact information of individuals, as well as business names, addresses, and ABNs for companies.
- Property Transaction Details: Account balances, income, expenses, rental availability dates, and property manager details, including their ABN, licence number, and bank account information.
This comprehensive data will allow the ATO to closely examine transactions, income, outgoings, and account balances related to rental properties. If discrepancies are identified, the ATO will contact taxpayers, giving them 28 days to verify the information before any administrative action is taken.
The Implications of Non-Compliance
The ATO’s data matching program is part of a broader effort to close the significant tax gap in the rental property sector. Recent audits have revealed that nine out of ten landlords are getting their tax returns wrong, contributing to a $10.2 billion tax gap for individuals not in business during the 2019–20 financial year. Incorrectly claimed rental property expenses alone accounted for $1.2 billion of this gap.
Given these findings, the ATO is taking a firm stance on inflated claims, especially those designed to offset increases in rental income. For example, while immediate deductions can be claimed for general repairs and maintenance—such as replacing damaged carpet or fixing a broken window—capital expenses like installing a new kitchen are only deductible over time as capital works.
Final Thoughts
The ATO’s crackdown is a clear signal that rental property owners need to be diligent in their tax reporting. By understanding the rules and maintaining accurate records, you can avoid potential penalties and ensure your tax affairs are in order. If you have any concerns about how these changes might affect you, contact our office for a more detailed discussion.
