The Australian Taxation Office has made it clear to landlords that they are a primary focus of scrutiny this tax season, announcing a far-reaching expansion of its data-matching capabilities. The crackdown has been prompted by an ATO review that found 90 per cent of rental property owners provided incorrect figures in their tax return, despite a similar proportion using a registered tax agent to lodge the information.

The ATO has ramped up its enforcement measures this year to address commonly made mistakes in tax returns. This initiative is expected to lead to fewer refunds and potentially leave taxpayers with increased debt.

New data is now rolling into the ATO from property managers, landlord insurance providers, financial institutions providing loans for residential investment properties and sharing economy providers, as well as income protection policy information. With the new landlord insurance data-matching protocol, the ATO is reminding taxpayers that insurance premiums paid for rental properties can be claimed as a tax deduction.

Similarly, any insurance payouts received in relation to an investment property must be reported as income.

The move marks the latest extension of the ATO’s long-running data-matching program. Earlier initiatives have used additional data to target groups including share traders, Australians who leave cash payments and foreign income off their annual tax return, international students and migration agents, and gig economy worker. The ATO Assistant Commissioner Tim Loh has advised that  “Recently, we’ve acquired residential property investment loan data for 1.7 million individuals. We’ve also acquired income protection insurance data for 800,000 individuals. What we’re doing is using those two data points to data match against data we have on our hands.”

Mr Loh said the agency identified several common errors that property investors made on their tax returns.

improvements made to private properties. It is worth noting that approximately 87% of landlords rely on tax agents to handle their tax returns. However, the ATO’s advanced analytics systems now enable them to identify residential property loans and other rental data more effectively.

Considering these findings, the ATO encourages rental property owners and their tax agents to exercise extra caution this tax season. It is crucial to review records meticulously before filing returns to ensure accuracy and compliance with tax regulations. One specific concern highlighted by the ATO is the correct apportionment of loan interest expenses for rental properties. Taxpayers should only claim interest on loans used to acquire rental properties and generate rental income. If a loan includes private expenses, such as a car purchase or a vacation, the interest deduction should only be claimed for the portion related to rental income production.

The ATO has expanded its third-party data matching ability and are targeting property managers and lenders. Mortgage lender data will also help the ATO identify if property investors had “over claimed interest” in their tax return. This and other data might also “reveal the existence of the rental property” that the investor had not previously disclosed to the Tax Office.

Declare everything.

The other area ties into the landlord’s insurance data. When you make a claim, such as loss of rent if your tenant stops paying, you need to include those payments in your tax return. Mr Loh said the agency wanted to cut the number of errors in tax returns, and noted that the taxpayer, not the tax agent, is ultimately responsible for what is included in a tax return.

The ATO will use the information to “identify and educate taxpayers who have made incorrect claims in their return”. The Tax Office has long-term plans to “pre-fill as much information as possible in future years,” he said.

The ATO is legally permitted to carry out its external data matching under laws that include the Privacy Act 1988, the secrecy provisions of the Income Tax Assessment Act 1936, the Taxation Administration Act 1953 and other tax laws.

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