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The ATO has launched a crackdown on the tax affairs of millions of landlords, targeting those who falsely claim rental deductions and minimise their capital gains liability by inflating costs.

It will expand its data matching program, forcing property management software companies to hand over around 2.3 million user records over a seven-year period from 2018–19 to 2025–26, according to a government gazette notice this week.

The data would be used to trigger compliance activities, improve risk models, and educate taxpayers.

“The Australian Taxation Office will acquire property management data from property management software companies,” it said.

Information requested included property owner identification and property transaction details such as the account balance, income, and expenses.

The ATO would focus on landlords failing to lodge tax returns and their rental property schedule on time, as well as those who “omit or incorrectly report income and deductions in their rental property schedules and associated income tax return labels”, it said.

Another issue targeted was omitted or incorrect reporting of CGT.

“Taxpayers with a rental property may omit or incorrectly report cost base elements which are used to determine the net capital gain or loss on a rental property used to generate income,” it said.

The data matching program builds on an initiative that began in May 2021, which involved collecting four years of data between 2018–19 and 2022–23.

Its expansion comes as the ATO grapples with a significant tax gap in the rental property sector, with nine in 10 landlords getting their tax returns wrong.

Recent audits also showed that incorrectly claimed rental property expenses contributed $1.2 billion, or 12 per cent, to the total $10.2 billion tax gap for individuals not in business during the 2019–20 financial year.

The ATO said data collected from software companies would include detailed property owner identification details and transaction information for both residential and commercial properties.

This included names, dates of birth, addresses, and contact information of individuals as well as business names, addresses, and ABNs.

Property details would also include addresses; rental availability dates; and property manager information, such as their ABN, licence number, and bank account details.

The ATO would also be examining transactions, incoming, and outgoings and the account balance of the rental property.

When the data matching produced discrepancies, the ATO said it would contact taxpayers to allow them to verify the information before taking action.

“They will have 28 days to respond before we take administrative action associated with property management data use,” it said.

As part of the ATO’s tax time campaign this year, it singled out rental deductions as one of three key focus areas.

“This year, we’re particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit,” Assistant Commissioner Rob Thomson said in May.

He said immediate deductions could be claimed for general repairs and maintenance of a rental property – like replacing damaged carpet or a broken window – but capital expenses could not.

“If you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works,” Thomson said.

Christine Chen
28 August 2024
accountantsdaily.com.au