ATO Expands Rental Data Collection

The Australian Taxation Office (ATO) has announced that it will soon begin collecting rental bond data for approximately 2.2 million individuals.

This data will be sourced twice a year from state and territory bond regulators and will include comprehensive details such as names, addresses, dates of birth, phone numbers, email addresses, and bank account information for both rental providers and tenants. Additionally, business-related details of property managers will be collected.

The ATO will also obtain information regarding the rental property itself, including its address, lease duration, start and end dates, bond amount, rental payments, and payment frequency. Further details, such as the type of dwelling, number of bedrooms, and a unique property identifier, will also be recorded.

This initiative follows the ATO’s acquisition of property management data last year from software providers, covering 2.3 million rental property owners. The project aims to identify instances where rental income has not been fully declared or where capital gains tax (CGT) obligations on the sale of rental properties have not been met. The ATO's increased focus on rental income compliance suggests that under-reporting remains a significant concern.

For those renting properties through short-term accommodation platforms such as Airbnb, the ATO is already accessing relevant data directly from platform providers. It is important to note that income earned from short-term rentals or renting out a room in a private home must be declared as taxable income, similar to long-term rental income. However, claiming deductions in such cases can involve complex calculations regarding expense apportionment.

Given the ATO’s heightened scrutiny of rental income, property investors are encouraged to review their tax records to ensure all rental transactions have been accurately reported. If any discrepancies are identified, voluntarily disclosing them to the ATO before an audit is initiated may be the best course of action.

Key Tax Considerations for Rental Properties

• Repairs vs. Improvements
  Distinguishing between repairs (which are immediately deductible) and improvements (which are deductible over time) can be challenging. Additionally, repairs undertaken immediately after acquiring a property and before securing tenants may not be eligible for an immediate deduction.
• Bond Deductions
  If a portion of a tenant’s bond is retained due to property damage, the retained amount must be declared as assessable income. However, related repair costs are generally deductible.
• Loan Interest Deductions
  Interest on loans used to purchase rental properties is deductible, provided the property is either rented out or available for rent. However, if a rental property is used as collateral for a loan to pay off a personal mortgage, buy a car, or fund a holiday, the interest on that loan is not deductible. The tax treatment depends on how the borrowed funds are used rather than the source of the loan.
• Genuine Rental Availability
  A holiday home must be genuinely available for rent to qualify for rental expense deductions. If it is used by family or friends at no charge or below market rates, deductions may be limited. Furthermore, listing a property for rent at an unrealistically high price does not constitute genuine availability.
• Inherited Properties
  Selling an inherited property can involve complex capital gains tax (CGT) implications, particularly if the property was rented out at any stage.