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ATO Intensifies Rental Property Crackdown with Bond Data Collection

ATO Intensifies Rental Property Crackdown with Bond Data Collection

The Australian Taxation Office (ATO) has intensified its efforts to catch landlords who misreport income and fail to lodge returns accurately. By collecting rental bond data from state and territory regulators, the ATO aims to close the tax gap and ensure compliance across the rental property market.

New Data Collection Strategy

The ATO has expanded its data-matching program by collecting rental bond records of around 2.2 million landlords, tenants, and property managers. This initiative will run twice annually from 2023-24 to 2025-26, enhancing the ATO’s ability to identify undeclared rental income and incorrect tax reporting.

The collected data includes personal details of landlords, tenants, and managing agents, such as names, addresses, phone numbers, and bank account details. It also covers rental bond transactions, including property addresses, lease periods, bond amounts, and refund details.

Why the ATO Is Targeting Landlords

The focus on rental properties stems from concerns about the tax gap — the difference between the tax paid and the tax owed. Investment properties contribute significantly to this gap, second only to work-related expenses. Many landlords underreport income, fail to declare rental properties, or miscalculate deductions and capital gains.

The ATO is determined to ensure landlords meet their obligations. Mark Chapman, H&R Block’s Director of Tax Communications, stated that we plan to match rental bond data with tax returns to verify if landlords are declaring rental income correctly.

Figure 1: Mark Chapman from H&R Block stated that the ATO is pursuing landlords failing to meet their tax obligations (Source: NCA NewsWire).

Key Areas of Non-Compliance

The ATO has identified several common issues among rental property owners, including:

  • Failing to Lodge Tax Returns: Some landlords do not submit returns on time or at all.
  • Incorrect Income Reporting: Landlords may omit rental income or report it inaccurately.
  • Improper Deductions: Errors often arise when claiming deductions for repairs, maintenance, or depreciation.
  • Capital Gains Misreporting: Some landlords fail to correctly calculate capital gains or losses during property sales.

By using rental bond data, the ATO can identify these issues more effectively and ensure landlords pay the correct tax.

How the Data-Matching Program Works

The ATO uses sophisticated data-matching technology, which includes over 60 identity-matching techniques, to ensure accuracy. This process compares rental bond data against tax returns to detect discrepancies.

The ATO expects high-quality data from state and territory regulators due to their advanced computer systems used for managing tenancy laws. Data will generally be retained for up to seven years but could be extended depending on reviews conducted at regular intervals.

Consequences for Non-Compliant Landlords

Landlords who fail to meet their tax obligations face serious consequences. The ATO may issue “please explain” letters, conduct audits, and impose penalties for underreporting income or failing to declare rental properties.

Chapman warned that landlords who are not declaring properties or rental income, whether intentionally or due to a lack of understanding, should be concerned. The ATO’s expanded powers make it easier to identify those failing to comply.

Also Read: Australian Home Prices Fall for the First Time in Two Years

What Landlords Should Do

Landlords can avoid penalties by:

  • Lodging Returns on Time: Ensure tax returns are submitted before the due date.
  • Accurately Reporting Income: Declare all rental income, including short-term and partial-period rentals.
  • Claiming Deductions Correctly: Understand the difference between capital works and repair deductions.
  • Maintaining Accurate Records: Keep detailed records of income, expenses, and property transactions.

Chapman suggested consulting a tax agent for clarity on tax obligations and to ensure compliance with Australian tax laws.

A Fairer Tax System

The ATO’s rental property crackdown seeks to create a level playing field where all taxpayers meet their obligations. Landlords who comply with the law have nothing to worry about. However, those failing to declare rental properties or income can expect increased scrutiny and potential penalties.

By collecting rental bond data and expanding its data-matching capabilities, the ATO aims to reduce non-compliance and ensure all landlords pay their fair share.

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