The ATO’s new move to claw back more than $1b from dodgy landlords

Landlords who haven’t declared rental income or over- or under-estimate their earnings are on notice after the ATO announced it will step up a data-matching program to claw back up to $1.2 billion in missing revenue.

Tax experts warn landlords who haven’t correctly declared income could face thousands in fines and interest on top of repaying unpaid taxes. Landlords should seek professional help if they’re concerned their returns haven’t been correct, they said.

The ATO is cracking down on landlords who don’t declare, or incorrectly declare, rental income. Credit: Dionne Gain

The ATO will match bond data from each state and the ACT to tax returns to see if landlords didn’t declare an income from a rental property they’d lodged a bond for, or if they had potentially misreported income.

“The program helps us identify taxpayers who own an income-producing property, and taxpayers who have sold an income-producing property, who may not be meeting their reporting, lodgment or payment obligations,” a spokesperson said.

The tax authority has been matching bond data for years, stepping up the procedure in the 2023-24 financial year. An ATO spokesperson said less-intensive data collection had already been effective.

“During the 2022–23 financial year, this program in combination with other data-matching and compliance strategies, identified approximately 5600 taxpayers where rental properties had not been treated correctly and raised an additional $23 million in revenue.”

Previous ATO analysis found nine out of 10 landlords were getting their income tax returns wrong.

H&R Block tax communications director Mark Chapman said it meant landlords needed to be extra vigilant with their returns. “For landlords, it does highlight the fact that the ATO is looking at them, and they potentially already know about any rental properties they own,” he said.

“The ATO has done some research which shows there’s a $1.2 billion gap between the tax they expect [to collect from landlords] and the tax landlords do pay.”

The now-collected data includes address of the rental property, name of landlords, name of tenants, how much rent is paid, bank account details, email addresses, phone numbers, lease details and details of the managing agent, Chapman said.

RMIT Centre for Urban Research director Professor Jago Dodson likened the program to those used by the government to claw back welfare payments from those who failed to declare income when receiving social security payments. He said it appeared to be a cost-effective enforcement practice.

“The ATO should be investigating that and scrutinising it where it’s appropriate,” he said. ”It should be the same as in the social security system when recipients haven’t declared income.

“I think landlords also deserve that amount of scrutiny. One thing about these questions of enforcement is once you detect poor behaviour in one area of the tax return, it may also lead to other areas they’ve failed to report on.

“There may be other areas of these landlords’ tax returns that are deficient that lead to further revenue to be recouped.”

Dodson said the matched data could help to improve policy around tax concessions to landlords, such as negative gearing, to ensure government subsidies in the rental market supported those most in need of affordable housing. He said the full matched dataset would reveal how many negatively geared properties housed those receiving rent assistance, for example.

“I don’t think there’s a strong case for subsidising private rental housing that is leased to affluent tenants. I think there is an argument for the flow of subsidies to support those who are in the most need of housing,” Dodson said. “By potentially joining up the data on who the tenants and the landlords are through rental bond data that will give us the capacity to design better subsidy arrangements.”

Chapman said it was best for landlords to declare previously unreported income and check previous returns if they were unsure if they were correct because the ATO could waive fines or interest if taxpayers came forward before they were contacted.

“They can make a disclosure to the ATO before they get contacted, and it won’t lead to any action taken against them,” he said.

Fines and interest payments could range into the thousands of dollars, Chapman said. “If you’re just talking about somebody who’s over-claimed a few dollars it won’t be a significant amount, but if it’s someone who hasn’t declared any income at all, you’re looking at thousands in relation to individual landlords.”

Chapman recommended landlords seek professional help to make sure their returns were up to scratch.

“Be proactive and take steps to correct the issue and potentially engage a tax practitioner to correct the issue for you,” he said. “A tax agent may be able to negotiate down any fines or penalties the ATO may want to impose.”

Start the day with a summary of the day’s most important and interesting stories, analysis and insights. Sign up for our Morning Edition newsletter.