Data matching is already a widely employed practice in the rental sector. In August, the Australian Taxation Office (ATO) obtained property management data from software companies, covering 2.3 million landlords, building on an initiative that began in May 2021.
The ATO expressed interest in reviewing rental bond data as it enables the identification and rectification of taxpayers who fail to lodge their returns or report their tax obligations accurately. The ATO stated, “The rental bond data-matching program will allow us to identify and address tax risks.” It emphasized that taxpayers with rental properties may neglect to submit tax returns or rental property schedules by the designated due dates.
Additional concerns raised included landlords who either omitted or inaccurately reported income and deductions in their rental property schedules or income tax return labels, or incorrectly calculated the cost base elements when determining the net capital gain or loss of their rental property.
Furthermore, the ATO intends to use this data to scrutinize non-resident landlords, ensuring compliance with conditions related to foreign investment approvals, property use, and vacancy fees.
The ATO outlined the program’s objectives, which include identifying and educating individuals and businesses who may fail to meet registration or lodgment obligations. It aims to assist them in lodging their income tax returns, accurately reporting assessable income from rental properties, correctly claiming associated rental deductions, and ensuring compliance with capital gains tax obligations.
The data to be collected includes the names, addresses, phone numbers, and bank account details of landlords, tenants, and managing agents. Additionally, the ATO will collect rental bond transaction data, including property addresses, lease periods, commencement and expiration dates, bond amounts, rent payable, and payment frequencies. Property characteristics such as dwelling type, number of bedrooms, and bond numbers will also be captured, along with details of lodgment dates, statuses, refund amounts, and unclaimed bonds.
The ATO’s data-matching process incorporates over 60 identity-matching techniques to ensure accurate identification of taxpayers based on third-party data. The ATO anticipates that the rental bond data will meet a high standard, as state and territory tenancy laws are administered through advanced computer systems. The data will generally be retained for a period of seven years, though this duration may be extended based on ongoing reviews conducted at intervals not exceeding seven years.
Additional Rental Data Matching by the ATO
Audit issues that may arise include the following:
- Repairs vs. Improvements: There is often ambiguity between work that qualifies as a genuine repair (which is tax-deductible in the short term) versus work deemed an improvement (which is typically deductible over time). Even when work constitutes a genuine repair, it may not be deductible if conducted immediately after property acquisition and before tenants occupy the property.
- Bond Retentions: If part of a rental bond is withheld due to tenant-caused damage, the retained amount must be declared as assessable income. The cost of repairs associated with the damage is generally deductible.
- Interest Deductibility: Interest on loans used to acquire an income-producing property, or any other investment asset, is deductible, provided the property is being leased or is available for lease. However, if the loan is secured against an investment property to pay off the mortgage on a primary residence or for personal expenditures (e.g., purchasing a car or funding a holiday), the interest becomes non-deductible. The purpose of the borrowed funds determines interest deductibility.
- Availability of Holiday Homes for Rent: If a holiday home is not exclusively used for rental purposes, and is used by family or friends at reduced or no charge, issues may arise regarding the apportionment of expenses. Advertising a property at an unrealistic price does not qualify as genuinely making it available for rent, which impacts the apportionment of expenses.
- Inherited Property: A variety of capital gains tax (CGT) issues may emerge when selling an inherited property, especially if it has been used for rental purposes.
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If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
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