ATO Cracks Down on Landlords: What You Need to Know

Take outs:

• Increased Scrutiny: The Australian Taxation Office (ATO) is intensifying its focus on landlords, particularly those who misreport rental income or incorrectly claim deductions. They are using detailed property management records to cross-check reported figures.

• Expanded Data Matching: The ATO's new initiative involves collecting around 2.3 million records from property management software companies, covering data from 2018–19 to 2025–26. This data will include personal, property, and financial details to help identify discrepancies.

• Focus Areas: The ATO is concentrating on landlords who fail to submit tax returns on time, misreport rental income, or manipulate capital gains tax by inflating property-related costs. Incorrect claims are a significant issue, contributing to a substantial portion of the tax gap.

• Discrepancy Protocol: If discrepancies are found through data matching, landlords will be given 28 days to address and clarify the issues before the ATO proceeds with further action. This year’s tax time campaign emphasizes the need for accurate rental deductions and compliance.

ATO Cracks Down on Landlords: What You Need to Know

If you’re a landlord, you might want to brace yourself for a fresh wave of scrutiny from the Australian Taxation Office (ATO). The tax authorities have recently launched a major crackdown targeting the tax affairs of millions of landlords. Here’s what’s going on and what it means for you.

What’s Happening?

The ATO is ramping up its efforts to catch taxpayers who are not playing by the rules. Specifically, they’re zeroing in on landlords who either falsely claim rental deductions or manipulate their capital gains tax (CGT) liabilities by inflating property-related costs. The ATO’s strategy involves acquiring detailed property management records from various software companies, which will enable them to cross-check and verify reported income and expenses.

The Data Matching Program

Under a new initiative, the ATO will be expanding its data matching program. This means property management software companies will be required to hand over approximately 2.3 million user records covering the period from 2018–19 to 2025–26. This move aims to enhance the ATO’s ability to detect discrepancies and improve their risk models. The collected data will include a range of information such as property owner details, transaction records, account balances, income, and expenses.

What Information is Being Collected?

The data collected will be comprehensive:

• Personal Details: Names, addresses, and contact information of property owners, as well as business names and ABNs.
• Property Details: Addresses, rental availability dates, and information about property managers including their ABN, license number, and bank account details.
• Financial Transactions: Incoming and outgoing transactions, along with account balances.

Focus Areas for the ATO

The ATO is particularly concerned with landlords who:

• Fail to lodge their tax returns and rental property schedules on time.
• Omit or incorrectly report rental income and deductions.
• Misreport CGT by omitting or inflating cost base elements.

A significant portion of the tax gap in the rental property sector is attributed to incorrect claims, with recent audits revealing that improperly claimed rental property expenses accounted for a whopping $1.2 billion of the $10.2 billion total tax gap for individuals not in business during the 2019–20 financial year.

What Happens if There’s a Discrepancy?

If the data matching process uncovers discrepancies, the ATO will reach out to the affected taxpayers. Landlords will have 28 days to respond and provide any necessary clarifications before the ATO takes further administrative actions.

The ATO’s Focus

This year, the ATO’s tax time campaign has specifically highlighted rental deductions as a key area of concern. According to Assistant Commissioner Rob Thomson, there is increased vigilance over claims that may be exaggerated to offset rising rental income. While general repairs and maintenance can be claimed immediately, significant capital improvements like installing a new kitchen must be depreciated over time.

So, if you’re a landlord, it’s a good idea to ensure all your tax filings are accurate and up to date. The ATO’s new data matching program is a clear signal that they’re serious about closing the tax gap and ensuring compliance in the rental property sector.