ATO’s crackdown on residential investment property loans and tax compliance

The ATO has announced the commencement of a data-matching program for property investors to acquire residential investment property loan data from authorised financial institutions.

Sample audits conducted under the ATO random enquiry program indicate a net tax gap of $9 billion for the 2019–20 income year attributable to incorrect reporting of rental property income and expenses.

A significant driver of the gap was incorrect apportioning of loan interest costs where the loan was refinanced or redrawn for private purposes.

Data matching and tax compliance

The ATO will use the data to ascertain information about rental property loans including information such as repayments, interest charged, and borrowing expenses. This information will be used to identify, assess and treat several tax compliance matters including:

Lodgment – confirming that taxpayers with rental properties are lodging tax returns and the relevant rental property schedule on or before the relevant due date;

Income tax – confirming taxpayers with a rental property are correctly reporting interest on loan and borrowing expense deductions in their rental property schedules and associated income tax return labels;

Capital gains tax (CGT) – confirming the calculation of cost base elements used to determine the net capital gain or loss on a rental property used to generate income.

After a return is lodged, the ATO will use the data collected to identify relevant cases for action including compliance activities and education strategies.

If a discrepancy is identified, taxpayers will be contacted by phone, letter or email. Taxpayers will then have 28 days to respond before the ATO takes any action in relation to the discrepancy.

Other matters

ATO’s residential investment property loan data matching program will run from 2021–22 to the 2025–26 income years.

The data collected by the ATO will be made available to tax professionals through pre-filling reports in Online services for agents and practitioner lodgment service (PLS) through standard business reporting (SBR) enabled software.

Individual self-preparers may also access the data collected by the ATO through myTax, specifically the rental property schedule interest on loans or borrowing expense labels and rental income tax return labels.

Should you have any queries in relation to this program and its operation, please feel free to contact our office.