Australian Taxation Office to check real estate investors’ loans

Rental property loans are now under the ATO’s microscope as a new data-matching program gives it more power to trap cheats.

The Australian Taxation Office will examine real estate investors’ bank loans this year as it steps up its efforts to stop dodgy claims.

Many of the nation’s 2.2 million property investors will be examined by the ATO’s new residential property loans program as it seeks to stop an avalanche of incorrect deductions and undeclared income.

ATO assistant commissioner Tim Loh said data would be collected on about 1.7 million investors’ loans, and used to crosscheck against information it already collected from banks and property managers. Landlord insurance data would soon be collected too, he said.

“Through those programs and the data that we have got, you can’t hide anymore,” Mr Loh said.

“The majority of errors we see on tax returns are from property investors making simple mistakes or failing to take reasonable care,” he said.

“However, we also do see deliberate attempts to improperly reduce a tax debt or increase refunds.”

A recent ATO analysis found nine out of 10 property investors’ tax returns were wrong.

Mr Loh said common mistakes included:

• Wrongly apportioning loan interest costs where a loan was refinanced for private purposes.

• Under-reporting or not declaring rental income.

• Not apportioning expenses for private use.

• Claiming the full amount of the loan rather than only the interest.

The ATO’s Tim Loh says some property investors deliberately cheat. Picture: Supplied

The ATO will collect investment property loan data initially from at least 16 banks, including the big four, and the information may include 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,” Mr Loh said.

Perks Accountants and Wealth Advisers director Neil Oakes said the new ATO program gave it greater information to data match for “red flags” and target its compliance activities, and landlords should make sure they apportioned their interest deductions correctly.

“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,” he said.

Mr Oakes said he believed a large portion of incorrect claims by property investors were driven by a lack of record keeping rather than a deduction not being allowable.

“Individuals need to understand that without proper substantiation the expense is not deductible,” he said.

“Another high risk area for individuals is where they have a rental property in a traditional holiday area and the property has an element of private use.

“In this instance an analysis needs to be undertaken to determine if the property was genuinely available for rent prior to claiming any tax deductions.

Mr Loh said investors should keep all records related to a property’s expenses, income, purchases and sales, and they must be kept for five years after it was sold.

“The ATO has developed a number of products to help taxpayers and registered agents get returns right. Specifically, the tax time toolkit for investors includes a dedicated guide and a number of fact sheets for rental property owners,” he said.

Originally published as Australian Taxation Office to check real estate investors’ loans