ATO warns property managers, insurers will keep investors honest in FY23

The Tax Office has also previously acknowledged it would be cracking down on claims made about rental properties this year — an area it conceded as one where mistakes are “common”.

Now, as the 2022–23 tax time looms, the ATO has revealed an expansion of its data-matching capability. Data from property managers, landlord insurance providers, and financial institutions that provide loans for residential investment properties are among the new streams of intelligence being used to stop taxpayers from leaving out income or inflating their deductions this tax time.

In a warning to investors, ATO assistant commissioner Tim Loh said tha “this isn’t a game of Guess Who”.

“Our sophisticated data-matching programs provide us with all the clues we need to track down taxpayers with incorrect information in their tax return,” Mr Loh said.

Mr Loh said the information gleaned through the data-matching process would be used “to identify and educate taxpayers who have made incorrect claims in their return”.

Longer term, he explained that the ATO aims to make life easier for investors, by pre-filling “as much information as possible in future years”.

The ATO has previously raised the statistic that nine in 10 rental property owners get their tax return wrong, and did so again in the latest update. It’s these errors that have led Mr Loh to confirm the start of the two new data-matching protocols this year.

They are investment loan data and landlord insurance policy information.

According to the assistant commissioner, “around 80 per cent of taxpayers with rental income claimed a deduction for interest on their loan, and this is where we’re seeing mistakes. For example, you can’t refinance an investment property to buy personal items, like a holiday to Europe or a Tesla, then continue to claim the interest expenses as a tax deduction.”

And alongside the new landlord insurance data-matching ability comes a reminder: insurance premiums paid for rental properties can be claimed as a tax deduction.

In the same vein, the ATO raised that any insurance payouts received in relation to an investment property need to be reported as income.

Mr Loh said the new data provides the ATO “with crucial intelligence to paint a picture of what’s true and accurate in tax returns”.

And while 87 per cent of taxpayers who own rental properties do use a registered tax agent to lodge their return, the assistant commissioner stressed that it is still important that taxpayers provide the right information to their tax agents.

At the end of the day, it’s still the taxpayer who is responsible for what they include in their tax return, even when using an agent.