What does the ATO know about your clients?
They’re getting better, the ATO. Better at knowing exactly what your clients are up to.
And the leaps in data matching will only accelerate when that pesky AI thing really hits its stride.
As you know, under Australia’s self assessment system, the ATO charitably assumes the information people give them is correct and they will only question it if they think there is something that doesn’t quite add up.
But what if there is something your clients are not telling you?
What if the figures you put in their returns don’t match what the ATO already knows about them?
And exactly what do they already know?
A lot.
The time is fast approaching when ‘self assessment’ will be a bit of folklore, something we look back on fondly, because the ATO will already know what refund people are entitled to before you submit their return. Maybe they’ll be telling people what they are prepared to give them back and you’ll have to then argue their case if you think they are being a bit stingy.
So what do they know already?
Salary details, of course, and how much tax they have paid. Most employers report that. Bank interest? Yep. Most companies also report dividend information to the ATO.
But what about property specific data?
How about incorrect depreciation claims? The best way to ensure that doesn’t happen is to use a company that has been doing this for over 20 years – residential and commercial properties. You can make an enquiry here.
We’ll call your client within the hour and make sure the job is worth doing. And if it is, we’ll do it quickly. And at a sensible price.
Key Points
- Short term rental platforms, like Airbnb, report payments made to property owners. That comes as a bit of a surprise to some people.
- Data matching from property managers is something the ATO has turned its attention to more recently. They’ll be tapping into a rich vein there.
- Property manager data will also inadvertently help the ATO to identify improvements incorrectly claimed as repairs.
- The states are getting in on the action, too, and auditing first home owner grants to claw back some money there.
Short term rental platforms report payments made to property owners
Owners of properties listed on Airbnb were notified a couple of years ago that that income data was being passed onto the ATO. Presumably Stayz and other smaller platforms do likewise. We have written about this here previously.
Often the rentals in question were granny flats or rooms in houses where the rent had always been paid in cash and flew under the radar.
Even on Airbnb etc, for a long time money was put into nominated bank accounts and it was up to the owners of those accounts to flag that income with the ATO. It was a bit surprising, to be honest, that it took the ATO so long to get tough on that.
Now at the end of every financial year, owners of short term websites tell the ATO exactly what they have paid the owners of the properties on their platform over that financial year. It can come as a bit of a surprise to those owners when they realise that the ATO already knows how much they have earned from their property.
And now that the ATO knows about the rental income, those owners open themselves up to CGT problems down the track when that property is sold. That’s something few people consider, but you would have covered that off with your clients for sure.
The ATO has turned its attention to matching information from property management data
The ATO recently promoted their data matching foray here into the world of property managers as being about compliance and education.
When it comes to the education bit, the underlying tone to property owners is, ‘Right, we’re going to teach you lot a lesson.’
Sample audits a couple of years ago indicated that unreported rental income was over one billion dollars per year. Surprise, surprise. So we’re not talking about small change.
So how are they doing it?
The ATO are not contacting individual property managers and asking them to hand over landlord data. Imagine how convoluted that would be.
No, they are going over the heads of agents and straight to the providers of the major software platforms used by agents and getting the data direct from them.
And they are planning to go back some years because, well, they can. No point just looking forward when they can go back in time and claw back goodness knows how much.
And it’s not just undeclared rent the ATO will be looking for. There will be CGT debts ‘overlooked’ by taxpayers, improvements incorrectly claimed as repairs and goodness what else.
Data matching will help the ATO identify landlords incorrectly claiming improvements as repairs
Of course, the ATO have been onto the incorrect claiming of improvements as repairs for some years and they flag it often as something on their watchlist. We have written about this before often, most recently here.
You know how it goes. Work that really should be claimed at 2.5% per year over 40 years is expensed and claimed as an immediate deduction. The most common one is painting. Followed by internal repairs to woodwork and walls. Roof work is common, too.
It’s not surprising clients want to claim back their expenditure immediately as opposed to having it drip fed over the next 40 years – some of us won’t even be around that long. And it’s equally not surprising that they might be economical with the truth when outlining the nature of work done to you.
So what prompts the ATO to query a repair claim? The amount, certainly. A big repair claim will get noticed for sure. But also the timing. If clients have only been renting a property out for, say, a year and put through a big repair claim, the ATO will be onto them in a flash.
Because in putting through that large claim, clients are saying that they needed to spend that much money to rectify the damage done while THEY were renting out the property.
The ATO are going to want proof that the damage was not there when they started to rent out the property.
First home owner grant recipients, the states (and the ATO) are watching!
Auditing first home owner grants is also a simple exercise and one that the states use to claw back a bit of money. They do this through data matching and mining. NSW also has an ‘Anonymous Tipoffs Hotline’, so you can bet the other states would, too.
The states firstly claw back the grant and concessions on stamp duty given erroneously to people.
Then they roll up their sleeves and get serious with prosecutions and fines.
And of course the states would also share news of their good fortune with the ATO.
Many of the people rorting the grants would be renting out their properties and possibly not declaring the income in an effort to fly under the radar. That’s what the ATO would be interested in.
People who use property managers and fail to declare income are easy for the ATO to catch when the ATO accesses data from the software providers used by property managers.
But it’s not much of a stretch for them to also notice regular and unexplained deposits into a bank account from a third party.
So in short, clients can run from the ATO, but they can’t hide.
Enquire now for a property-specific assessment
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