The Australian Taxation Office (ATO) has initiated a significant enforcement targeting millions of landlords suspected of misreporting rental income and improperly claiming deductions. This effort is part of an expanded data matching program that will require property management software companies to provide approximately 2.3 million user records spanning from the 2018–19 financial year to 2025–26, as outlined in a recent government gazette notice.
The ATO aims to utilise this data to enhance compliance measures, refine risk assessment models, and educate taxpayers about their obligations. The information requested from property management companies includes essential details such as property owner identities, transaction specifics, account balances, income, and expenses.
Key areas of focus for the ATO include landlords who fail to file tax returns or their rental property schedules promptly, as well as those who inaccurately report income and deductions. The agency is particularly concerned about the omission or incorrect reporting of capital gains tax (CGT) elements that are crucial for calculating net capital gains or losses on rental properties.
This crackdown builds on a previous initiative launched in May 2021, which gathered data for four years up until 2022–23. The expansion comes in response to a notable tax gap within the rental property sector, where studies indicate that up to 90% of landlords may submit incorrect tax returns. Recent audits revealed that erroneous claims related to rental property expenses accounted for $1.2 billion—12% of the total $10.2 billion tax gap for individuals not engaged in business during the 2019–20 financial year.
The ATO's data collection will encompass comprehensive details such as names, dates of birth, addresses, and contact information for both individual landlords and businesses. Additionally, it will include specific property details like addresses, rental availability dates, and information about property managers.
In instances where discrepancies arise from the data matching process, the ATO will reach out to taxpayers to allow them to confirm the accuracy of their information before proceeding with any enforcement actions. Taxpayers will have a 28-day window to respond prior to any administrative measures being implemented.
As part of its ongoing tax time campaign, the ATO has identified rental deductions as a primary area of scrutiny for this year. Assistant Commissioner Rob Thomson emphasized that there is heightened attention on claims that may have been exaggerated to counterbalance increases in rental income for greater tax benefits. He clarified that while immediate deductions can be claimed for general repairs—such as replacing damaged carpets or broken windows—capital improvements must be depreciated over time.
Overall, landlords are advised to maintain accurate records and seek professional guidance to navigate the complexities of tax reporting related to rental properties effectively.
If you have any further questions please contact your Client Manager.
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