In order to close the tax gap of individual taxpayers, the ATO is cracking down on rental property owners with the commencement of 2 data-matching programs to collect property management data and rental bond data, ensuring that various income tax reporting obligations have been met.
The programs will complement each other and collect the personal information of more than 1.6m property owners for the 2018-19 to 2022-23 financial years, and extend the existing rental bond data-matching program through to 30 June 2023. The data, such as detailed information on the dwelling (ie the number of bedrooms etc), commencement and expiration of leases as well as the amount of bond held will be used for compliance activities in relation to income tax and CGT.
The justification used by the ATO for targeting rental property owners is that each year it conducts a review of a random sample of tax returns to calculate the difference between the tax collected and tax that should’ve been collected (ie the tax gap), for the 2017-18 year, it estimated a net tax gap of 5.6% or $8.3bn for individuals with rentals making up 18% of this net tax gap. As a comparison, the net tax gap for high wealth groups is 7.4%, for medium businesses it is 6.2% and for small businesses it is 11.5%.
What kind of information is being obtained?
The information obtained under the 2 programs will include property owner identification details, including unique ID, individual/non-individual names, addresses (residential and postal), email addresses, contact numbers, BSB number, bank account number, bank account name, and business contact names and ABN if applicable.
Rental property details obtained under the 2 programs will include address, date property first available for rent, period of lease, commencement and expiration of lease, amount of rental bond held, number of weeks the rental bond is for, amount of rent payable for each period, period of rental payments (ie weekly, fortnightly, or monthly), type of dwelling, number of bedrooms, rental income category, rental income amount, rental expense category, rental expense amount, and net rent amount.
In addition to the above, the programs will also obtain details of the property managers involved, including business name, managing agent full name, business addresses (including internet addresses), email, contact numbers, ABN and licence number. As can be seen, the amount of information to be collected by the ATO is voluminous and detailed which will enable it to perform detailed analytics for its compliance programs.
How is this information being obtained?
The rental bond data will be acquired from State and Territory rental bond regulators on a bi-annual basis, and the property management data will be acquired from property management software providers.
It is expected that records relating to around 1.6m individuals will be obtained each financial year in relation to the property management program and records of an estimated 350,000 individuals will be obtained under the rental bond program. Although, due to the nature of the data collected, there will be some overlap in the number of individuals captured.
The ATO will be using the vast amount of data collected to ensure that taxpayers that own income producing property are meeting their obligations to report the correct amount of income in their tax returns. It will also be used to identify taxpayers disposing of income producing properties which will trigger a CGT event, the ATO notes that it will use historical rental bond data to support CGT cost base calculations if necessary.
Further, the ATO notes that while the data collected from the programs will be retained for 7 years from the receipt of the final instalment of verified data from data providers, its general compliance approach will align with the standard period of review (commonly 2 years for individuals and small businesses) and record-keeping (usually 5 years). However, note that in cases of fraud of evasion, there is no time limit for amending an assessment.
If you’re not sure whether you’ve included the right amount of rental income in your tax return or whether you’ve worked out the CGT correctly, we can help you get on the front foot with the ATO and lodge an amendment if necessary. Contact your usual Mazars adviser or speak to one of our tax advisory specialists via the form below or on:
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