Tax office's new residential property loans program will target a significant number of the nation's 2.2 million property investors
The Australian Taxation Office (ATO) is set to launch a rigorous examination of real estate investors' bank loans this year as part of intensified efforts to combat fraudulent claims.
The ATO's new residential property loans program will target a significant number of the nation's 2.2 million property investors, aiming to prevent incorrect deductions and undeclared income, The Australian reported.
According to ATO assistant commissioner Tim Loh, data will be collected on approximately 1.7 million investors' loans and cross-checked with information already obtained from banks and property managers. Loh also said that the ATO will soon collect landlord insurance data as well.
“Through those programs and the data that we have got, you can't hide anymore,” Loh told The Australian.
Loh said that while the majority of errors on tax returns are due to simple mistakes or lack of reasonable care by property investors, deliberate attempts to manipulate tax debts or inflate refunds do occur. A recent analysis by the ATO revealed that nine out of 10 property investors' tax returns were incorrect.
Loh outlined common mistakes made by property investors, including misallocating loan interest costs when refinancing for personal purposes, underreporting or failing to declare rental income, not apportioning expenses for private use, and claiming the full loan amount instead of only the interest.
To carry out its examination, the ATO will initially collect investment property loan data from at least 16 banks, including the big four, The Australian reported. This information may encompass account details, loan balances, transactions, loan types and terms, and unique account IDs.
“We have got all that information and we use that to crosscheck and cross-match against the data that we have to make sure people are doing the right thing in this space,” Loh said.
Good record-keeping vital
Neil Oakes, director of Perks Accountants and Wealth Advisers, acknowledged that the new ATO program provides greater information for data matching and enables the targeting of compliance activities. He advised property owners to ensure accurate apportionment of interest deductions.
“For example, where the ATO identifies any upward movements in a loan balance, it may result in a ‘please explain letter’ if the entirety of the interest is claimed on that facility with no apportionment,” Oakes told The Australian.
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Oakes also expressed his belief that a significant portion of incorrect claims by property investors are due to inadequate record-keeping rather than claiming non-deductible expenses. He emphasised the necessity of proper substantiation for expenses to be considered deductible.
Loh advised investors to retain all records related to a property's expenses, income, purchases, and sales for a minimum of five years after the property is sold.
“The ATO has developed a number of products to help taxpayers and registered agents get returns right,” he said. “Specifically, the tax time toolkit for investors includes a dedicated guide and a number of fact sheets for rental property owners.”
This isn’t the first time the ATO has warned investors that they would be subject to closer scrutiny. The office has warned investors that failing to declare all income was a common mistake.
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