Banks will be compelled to hand over the data of 1.7 million landlords, including transaction details, as part of a tax office crackdown in search of $1.3bn in revenue lost from residential investment properties.
The data-matching program will target people failing to declare rental income or pay capital gains tax, and those incorrectly claiming deductions – including rental property loan interest – to reduce income and negatively gear properties.
According to a sample audit conducted by the Australian Taxation Office in 2020-21, the federal government missed out on an estimated $9bn in tax revenue from individuals due to tax avoidance or errors.
The ATO said that “a significant driver of the gap is the incorrect reporting of rental property income and expenses”, telling Guardian Australia that “the rental component of the individuals’ tax gap is estimated to be $1.3bn”.
It said the most common errors on rental tax deductions are: no or incorrect apportionment of the loan interest costs after refinancing for private purposes; claiming costs as a repair rather than a capital works deduction; and not apportioning expenses for private use of the property.
Last week, the ATO announced a data-matching program for the 2021-22 to 2025-26 financial years aimed at capturing information about residential investment property loans in a bid to catch those “who may be failing to meet their reporting or lodgement obligations”.
The ATO will collect: client identification details including names, addresses, phone numbers and dates of birth; account details including account numbers and balances; transaction details; and rental property details.
“We expect to collect data on approximately 1.7 million individuals each financial year for this program,” the ATO website said.
The ATO listed 17 financial institutions in Australia, including the big four banks – Commonwealth, Westpac, NAB and ANZ – and mortgage provider RAMS, who will be “obligated (sic) to provide the information request” by the use of “formal information gathering powers” which are “coercive” in nature.
The ATO said the program would help “promote voluntary compliance” by taxpayers, including helping self-preparers through myTax and prefilling details in systems used by tax agents.
But it will also “identify relevant cases for administrative action including compliance activities”.
“We will use the data for tax and superannuation compliance purposes.”
Landlords will be given 28 days to respond before any administrative action is taken using data gleaned from their financial institutions, giving them a chance to dispute the information collected by the ATO.
“Our data-matching programs help us fulfil our responsibility to protect public revenue and maintain community confidence in the integrity of the tax and superannuation systems,” the ATO said.
Under an earlier data-matching program, the ATO acquired information about 1.6 million landlords from property management software providers for the period 2018–19 to 2022–23.
In February, the tax expenditure and insights statement revealed that 2.4 million people claimed $51.3bn in rental deductions in 2019-20, reducing their tax bills by about $18.6bn.
About 1.3 million people had a rental loss – known as negative gearing – which added up to total rental losses of $10.2bn, helping to reduce their tax bills by about $3.6bn.
