With tax time in full swing, the ATO’s data collection program has been expanded to include property management firms, which will give it more transaction information about 1.6 million real estate investors who use property managers.
ATO assistant commissioner Tim Loh said 70 per cent of the 2019-20 property investor tax returns it selected to review had to be adjusted, and “on average the correction was about $4500 for each return”.
“Some people are making genuine mistakes but there’s also people who are deliberately doing the wrong thing,” he said.
“Don’t try and take the mickey out of the tax system.”
The ATO’s data matching and “nearest neighbour” technology examines investors’ tax claims, often in real time before they lodge their return, and spots deductions or income that seem unusual compared with a typical claim.
“Every return is scanned,” Mr Loh said.
He said the ATO’s use of property management firm data complemented its existing third-party data sharing arrangements with rental bond authorities and accommodation sharing platforms such as Airbnb.
“We are expanding the rental income data we receive directly from third party sources.
“We are getting information in relation to under-reporting of rental income and overclaiming of property management fees.”
The most common mistake made by rental property and holiday homeowners was neglecting to declare all their income, including capital gains when selling a property, Mr Loh said.
Chartered accountant and Mr Taxman founder Adrian Raftery said the ATO sourced an “insane” amount of data from third parties using technology and data scientists.
“They collect information about what you bought a property for,” he said.
This enables checks on whether investors are claiming too much interest, as well as matching it with sales data to determine if capital gains are claimed correctly.
Dr Raftery said many property investors chased negative gearing tax deductions, where expenses exceeded income and could deliver large tax time windfalls.
“It’s a legitimate tax strategy and you can get big refunds, but don’t go over the boundary,” he said.
Dr Raftery said investors should read through the ATO’s rental properties guide for more information.
Sometimes dodgy claims elsewhere in a tax return can attract the ATO’s interest in property investors. In July a Queensland sales manager received a criminal conviction and was instructed to pay $29,654 in court orders after her fake work trip claim led the ATO to investigate her real estate dealings and find she failed to declare $39,600 of rental income.
“Where there’s smoke there’s fire,” the ATO’s Mr Loh said.
He said property investors should also examine the ATO’s online investor’s toolkit and depreciation and capital allowances tool.
Original article published here by The Cairns Post on 2 August 2021.