The Australian Taxation Office (ATO) has conducted a random enquiry program for individuals and found that there is a gap of $9bn in taxes for the 2020 income year. This gap was mainly caused by incorrect reporting of rental property income and expenses. The ATO estimates that rental property expenses alone contributed around $1bn or 14% of the total gap. One of the main drivers of this gap is the incorrect allocation of loan interest costs, especially when the loan was refinanced or redrawn for private purposes.
To address this issue, the ATO has announced a data matching program to obtain residential investment property loan data from authorized financial institutions for the 2021-22 to the 2025-26 income year. The information collected will include details such as account numbers, balances, transaction dates, amounts, and property addresses. The data providers include major banks as well as other financial institutions, and the ATO will be the sole user of the data obtained.
The ATO will use this data to identify, assess, and treat several tax risks related to rental properties. This includes confirming that taxpayers with rental properties are lodging tax returns and the relevant rental property schedule on time, correctly reporting interest on loan, and borrowing expense deductions, and confirming the calculation of cost base elements used to determine the net capital gain or loss on a rental property. After a tax return is lodged, the ATO will use the data collected to identify relevant cases for compliance activities and education strategies.
Taxpayers will be contacted by phone, letter, or email if a discrepancy is identified, and will have 28 days to respond before the ATO takes any administrative action in relation to the discrepancy. The ATO will also use the data obtained to improve voluntary compliance and may make some of the information available to individual self-preparers through myTax.
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