The ATO has announced the commencement of a data-matching program for property investors to acquire residential investment property loan data from authorised financial institutions.
Sample audits conducted under the ATO random enquiry program indicate a net tax gap of $9 billion for the 2019–20 income year attributable to incorrect reporting of rental property income and expenses.
A significant driver of the gap was incorrect apportioning of loan interest costs where the loan was refinanced or redrawn for private purposes.
The ATO will use the data to ascertain information about rental property loans including information such as repayments, interest charged, and borrowing expenses. This information will be used to identify, assess and treat several tax compliance matters including:
After a return is lodged, the ATO will use the data collected to identify relevant cases for 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 action in relation to the discrepancy.
ATO’s residential investment property loan data matching program will run from 2021–22 to the 2025–26 income years.
The data collected by the ATO will be made available to tax professionals through pre-filling reports in Online services for agents and practitioner lodgement service (PLS) through standard business reporting (SBR) enabled software.
Individual self-preparers may also access the data collected by the ATO through myTax, specifically the rental property schedule interest on loans or borrowing expense labels and rental income tax return labels.
Situations will arise where a landlord refinances a rental property loan that is a mixed purpose loan. This is essentially a loan that has been partly applied for an income producing purpose (e.g., to acquire a rental property) and partly applied for a private purpose (e.g., to pay for a holiday).
A mixed purpose loan in relation to a rental property often arises where, for example:
Where a landlord refinances a mixed-purpose loan, the following two key traps generally apply:
The above problems with refinancing a mixed purpose rental property loan can be avoided by using separate loans or sub-accounts. Refer to paragraphs 46 to 47 of TR 2000/2.
More specifically, refinancing an existing mixed purpose rental property loan using separate loans or sub-accounts essentially involves the following:
The above solution not only avoids interest expenses having to be apportioned, but it also avoids having to apply any principal repayments against both the income producing and private portions of the loan proportionately. This means that principal repayments can be directed solely to the separate private loan/sub-account, thereby reducing only the private portion of the borrowing.
Should you have any queries in relation to this program and its operation, please feel free to contact our office.
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