February 2025
Well, the ATO hit the ground running this year. They announced gleefully in the first week of January, while the cricket was still on, yet another data matching area they are exploring – rental bonds.
And they already know so much about property investors.
We have observed previously that the time is fast approaching when you may not need to do a tax return. The ATO will tell you what they think they owe you and you have to argue your case if you think they are being a bit stingy.
Or they will just send you a bill.
The ATO knows more about taxpayers than their accountants in some cases. There is a bit of a misconception that people can be economical with the truth when they see their accountant and if there is a problem their accountant will be in strife.
When you sign off on your tax return, you are accepting responsibility for the accuracy of it, not your accountant. And if that tax return omits information the ATO is expecting to see, it leads to some awkwardness.
What else does the ATO already know?
Key Points:
- 1. The ATO has extended its data matching program, announcing a rental bond data matching program to catch out landlords who may not have met their obligations.
- 2. In conjunction with this, the ATO will continue to look at data from property managers.
- 3. Payments from Short Term Rental Platforms are also monitored by the ATO.
- 4. Claiming repairs and improvements correctly is something that comes up with the ATO every year.
These four pieces of information in combination paint a clear picture for the ATO of your compliance with their obligations. Let’s take a look at each in detail.
The ATO’s Rental Bond Data Matching Program
As always, the ATO tries to couch these things in a sort of paternal way.
They are simply seeking to ‘identify and educate individuals and businesses who may be failing to meet their registration or lodgement obligations and help them.’ You can read more about this here.
If a bond has been lodged for a rental property, there is a reasonable expectation by the ATO that the property is earning income and that income will be declared.
The fact that the ATO is having a serious crack at this means they have done some fishing and found, lo and behold, that there are cases where a rental bond is collected for a property but no income declared.
The ATO want to ‘help’ these people see the error of their ways.
And then likely punish them.
It’s not hard to do this one, either. Each state and territory has the equivalent of a Rental Bond Board that collects and manages rental bonds. And those records would go back forever, so the ATO might do some retrospective fishing.
The ATO is cross checking data from property managers, too
For the last year or so, the ATO have been matching income paid by property managers to landlords to their declared income. It’s another way the ATO are being ‘helpful’ and making sure that taxpayers don’t accidentally overlook that income.
And it’s a lot of income being overlooked. The ATO estimates that around one billion dollars of income every year from property is not declared. You can read more on this here.
The way they are doing it with property managers is very clever.
Rather than go to individual property managers, they have leapfrogged them and gone to the providers of the software used by property managers. So they are only having to target perhaps half a dozen companies that hold the information they want rather than goodness how many property managers. You can read more on this here.
And they plan to go back some years because, well, they can.
Short Term Rental income continues to be in the ATO’s spotlight
The ATO have also leapfrogged landlords who rent out their properties, or part of them, on short term rental platforms.
They probably really only had to go to Airbnb and Stayz. They must have close to 100% of the short term rental market.
Some property owners might assume that because they have always rented out the bungalow in their backyard cash in hand, they can just carry on under the radar even though the rent now comes into their bank account from a third party.
Others assume that because they are just renting out a couple of rooms in their house, the ATO won’t really be interested.
The ATO is always interested.
So rather than putting taxpayers to the effort of having to declare that income, the ATO now get it direct from the source i.e. Airbnb and Stayz. They know exactly how much those platforms pay property owners so there is no escaping.
And of course, now that the ATO knows about those people only renting out a couple of rooms in their house, there is the prospect of possible CGT obligations down the track.
Is it a repair? Is it an improvement? The questions we ask to help you get it right.
Then there are repairs vs improvements.
We bang on about this all the time, most recently here, because we get asked about it all the time by clients and accountants.
People need to get it right because it is something the ATO also bang on about every year.
This tax season, they will do another press release saying this year they are targeting people incorrectly claiming improvements as expenses. It will be a cut and paste of last year’s one. And the year before, and so on.
A large repair claim will often attract scrutiny.
It’s tricky, because the line between repairs and improvements can be a bit blurry and this blurriness can be made worse if someone is trying to be a bit ambitious.
We get this all the time. People often call us before they see their accountant in the hope of convincing us so they can then tell their accountant we endorsed their plan wholeheartedly.
It takes only a couple of questions to dash those plans.
Question 1:
Did you replace an entire Asset e.g. an oven, hot water unit etc? If so, it is not a repair and you need to depreciate that new Asset.
Question 2:
Did the work you performed e.g painting, tiling, cupboard doors, glazing, benchtops etc make the property better than it was when YOU started to rent out the property? If so, the property has been improved and that work needs to be depreciated.
We tell clients to always make sure they have proof – photos at the beginning of the rental period and then photos of the damage that needs to be dealt with. And receipts for the work.
Do you have a residential or commercial property you would like us to help you claim depreciation for? Or a question about depreciation? Order online now or call us on 1300 660 033 and rely on our 20-plus years of experience in estimating depreciation returns.
