Banks will soon be compelled to hand over the transaction data of 1.7 million property investors as part of a major crackdown on landlords evading their tax obligations.
Property investors are under the gaze of the ATO as they seek to claw back billions of dollars in lost tax revenue.
The Australian Taxation Office (ATO) will access the bank transaction data of 1.7 million property investors as part of a massive crackdown on tax evasion among landlords. Under the data-matching program, the ATO will be able to obtain residential investment property loan data (RIPL) from 17 banks.
The focus is on people failing to declare rental income or pay capital gains tax, and those incorrectly claiming deductions, including rental property loan interest, to reduce income and negatively gear properties.
While it hasn’t issued a media statement or made a public announcement, the ATO’s website details the objectives of the RIPL program and the motives behind it.
Findings from random audits of individuals by the ATO led them to estimate the net tax gap for the 2020 financial year as being $9 billion, or 5.6 per cent.
“A significant driver of the gap is the incorrect reporting of rental property income and expenses, with the net tax gap for rental property expenses contributing $1 billion, or 14 per cent of the total individuals’ gap,” the ATO noted.
“A common reason driving the incorrect reporting of rental expenses is individuals incorrectly apportioning loan interest costs where the loan was refinanced or redrawn for private purposes.”
The ATO described its main goals as being to:
- promote voluntary compliance and increase community confidence in the tax and superannuation systems
- identify and educate individuals who may be failing to meet their reporting or lodgement obligations and help them
- lodge their income tax returns
- correctly report rental property loan interest and borrowing expense deductions in rental property schedules and associated labels of the income tax return
- correctly report net capital gains in income tax returns for properties used to derive income.
Around 2.4 million individuals claimed $51.3 billion in rental deductions in the 2019-2020 financial year, providing an approximate $18.6 billion tax bill reduction.
About 1.3 million people had a rental loss – known as negative gearing – which added up to total rental losses of $10.2bn, helping to reduce their tax bills by about $3.6bn.
The ATO said the most common errors on rental tax deductions are: no or incorrect apportionment of the loan interest costs after refinancing for private purposes; claiming costs as a repair rather than a capital works deduction; and not apportioning expenses for private use of the property.
Landlords who dispute claims made by the ATO in relation to the sourced data would have a 28-day window to respond.
