The ATO is targeting investment property owners – what you need to know.
The ATO believes there is a shortfall in tax revenue of around $1 billion dollars due to property investors over-claiming tax deductions or under-declaring the assessable rent.
Rather than relying solely on the information presented in the self-assessed income tax return, the ATO has decided to mine financial information from other services separate from the investor.
As a result, banks and other financial institutions will be required to hand the ATO residential investment loan data on an estimated 1.7 million rental property owners for the period from 2021-22 through 2025-26.
The data to be collected will include:
- identification details (names, addresses, phone numbers, dates of birth, etc.)
- account details (account numbers, BSBs, balances, commencement and end dates, etc.)
- transaction details (transaction date, transaction amount etc.)
- property details (addresses, etc.)
In addition to identifying whether landlords are declaring their residential investment property income, the data matching program is looking specifically at how rental property loan interest and borrowing expense deductions have been reported in the rental property schedules and whether net capital gains have been declared for property used to generate income.
Banks are not the only source of data. The ATO is also targeting rental property management software. Over the last decade, much of the financial management of residential rental property has moved online, facilitated by various platform providers. The ATO will require these rental property software providers to provide details of property owners, including their bank details, income, expenses and the amount of those expenses, and details of their associated rental properties and agents. Data collection of the estimated 1.7 million individuals in this data program will cover the period from 2018-19 to 2022-23.
Accuracy of the information that you provide in your tax return is critical as the ATO imposes very harsh penalties for errors or omissions.
For example, if the ATO feel that you have intentionally disregarded the law, they can impose a penalty of 75% of the shortfall. For example, suppose you are in the top tax bracket of 45%, and you overestimate your tax-deductible expenses by, say, $10,000. In that case, the ATO will levy the shortfall tax of 45% x 10,000 = $4,500 plus a non-tax deductible penalty of 75% x 4,500 = $3,375 plus interest.
Should you require further information in relation to taxation and investment property, please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation-free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.