Property investors beware: new data matching program

Recent results of sample audits across individuals conducted under the ATO random enquiry program appeared to show a net tax gap of $9bn for the 2020 income year, with the incorrect reporting of rental property income and expenses being a significant driver of the gap. Specifically, the estimated net tax gap for rental property expenses contributed around $1bn or 14% of the total individuals gap, with a common driver being the incorrect apportioning loan interest costs where the loan was refinanced or redrawn for private purposes.

Based on the results of the program, it comes perhaps as no surprise that the ATO has announced the commencement of a data matching program to acquire residential investment property loan data from authorized financial institutions for the 2021-22 to the 2025-26 income year. Information collected will include:

identification details – unique client ID, names, addresses, phone numbers, date of birth, and email address;
account details - account numbers, BSB, balances, commencement and end dates, term of loan, opening and closing balances, borrowing costs;
transaction details - transaction date, amounts, transaction description; and
property details - addresses, etc.

The data providers include the big 4 banks (ANZ, Commonwealth, Westpac, NAB), as well as other providers and their subsidiaries, including Adelaide Bank, Bank of Queensland, Bendigo Bank, Bankwest, ING, Macquarie Bank, Suncorp, RAMS, Ubank, St George, Bank of South Australia, Bank of Melbourne and ME Bank. The ATO will also be the matching agency and the sole user of the data obtained during this program.

Records relating to approximately 1.7m individuals will be obtained each financial year.

The ATO will be using the data obtained to provide information about rental property loans including information such as repayments, interest charged, and borrowing expenses. It will be using this information of identify, assess and treat several tax risks including:

Lodgment – confirming that taxpayers with rental properties are lodging tax returns and the relevant rental property schedule on or before the relevant due date;
Income tax – confirming taxpayers with a rental property are correctly reporting interest on loan and borrowing expense deductions in their rental property schedules and associated income tax return labels;
Capital gains tax (CGT) – confirming the calculation of cost base elements used to determine the net capital gain or loss on a rental property used to generate income.

According to the ATO, after a return is lodged, it will be using the data collected to identify relevant cases for administrative action including compliance activities and education strategies. If a discrepancy is identified, taxpayers will be contacted by phone, letter or email. Taxpayers will then have 28 days to respond before the ATO takes any administrative action in relation to the discrepancy.

In addition to compliance action, the ATO will also be using the data collected to gain insights to help develop and implement treatment strategies to improve voluntary compliance. The data obtained may also be made available to individual self-preparers through myTax, specifically the rental property schedule interest on loans and/or borrowing expense labels and rental income tax return labels.