The Australian Taxation Office (ATO) recently launched a new program aimed at stamping out landlords who incorrectly claim tax deductions and fail to declare rental income and pay capital gains tax. The ATO estimates the errors have resulted in a tax shortfall of as much as $1.3 billion.
The scheme, called the Residential Investment Property Loans Data Matching Scheme, will collect data from 17 banks for the 2021-22 to 2025-26 financial years to help the ATO spot and correct errors made by landlords on their tax returns. In addition, the ATO will regularly review rental property landlords’ income and deductions “irregular” returns to ensure individual taxpayers are able to obtain the correct tax return in the first place.
Common errors on rental property tax returns include: loan interest costs not apportioned or apportioned incorrectly when the loan is refinanced for private purposes; deducting renovation costs as repairs rather than capital works; not apportioning property for private use fees etc.
In response, ATO Assistant Commissioner Tim Loh said the data matching scheme was part of a wider data matching scheme to address some of the tax risks in investing in the property market. He said the ATO would use the data collected to conduct compliance activities, gain insights into strategies to improve voluntary compliance, build community confidence and create a level playing field.
As an investor and buyer’s agent, Nicole Kowalczyk says the classification of investment property costs is often a gray area for investors. She advises investors to keep detailed records, including invoices and receipts, to substantiate their claims and provide evidence. Additionally, it is critical for investors to accurately classify expenses and update their tax depreciation schedules to avoid inaccurate or reduced claims.
Finally, the ATO reminds taxpayers to ensure they have records to support their claims and provide complete and correct information to their registered tax agents. Taxpayers are responsible for ensuring their tax returns (and other tax forms) are correct and in compliance with tax laws. For taxpayers who have discovered errors, errors or omissions in their tax returns can be corrected through the ATO’s online amendment process.
All in all, the ATO is cracking down on real estate investors misdeclaring tax deductions, aiming to maintain a level playing field and community confidence. Investors should remain vigilant, abide by relevant laws and regulations, and update the tax depreciation table in a timely manner.
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